Which of the following is a negative impact of lobbying in the context of public solutions to externalities?

• A. Lobbying increases transparency in government decision-making.
• B. Lobbying can lead to regulatory capture, where policies favor special interests over the public good.
• C. Lobbying always ensures that externalities are efficiently internalized.
• D. Lobbying reduces the need for government intervention in markets.

Answer: (B)

Verified step by step guidance

1. Understand the concept of externalities: Externalities occur when a third party is affected by the actions of others, and these effects are not reflected in market prices. Public solutions aim to correct these market failures.
2. Recognize the role of lobbying: Lobbying involves interest groups attempting to influence government policies and regulations to benefit their own interests.
3. Analyze the potential negative impact of lobbying: One key negative effect is regulatory capture, where the regulatory agencies or policies end up serving the interests of special groups rather than the general public, leading to inefficient or unfair outcomes.
4. Evaluate the given options: Increased transparency is generally positive, and lobbying does not always ensure efficient internalization of externalities nor necessarily reduce government intervention.
5. Conclude that the negative impact of lobbying in this context is that it can lead to regulatory capture, which undermines the goal of public solutions to externalities by favoring special interests over the public good.