Which of the following is NOT a public solution to externalities?

• A. Imposing taxes or subsidies
• B. Establishing tradable permits
• C. Direct government regulation
• D. Private bargaining between affected parties

Answer: (D)

Verified step by step guidance

1. Step 1: Understand what externalities are — they are costs or benefits caused by a producer that are not financially incurred by that producer, affecting third parties.
2. Step 2: Recognize that public solutions to externalities involve government intervention to correct market failures, such as imposing taxes or subsidies, establishing tradable permits, and direct government regulation.
3. Step 3: Identify that private bargaining between affected parties is a private solution, not a public one, as it relies on negotiation without government enforcement.
4. Step 4: Review each option and classify it as either a public or private solution based on whether the government is involved in implementing it.
5. Step 5: Conclude that the option 'Private bargaining between affected parties' is NOT a public solution to externalities because it does not involve government action.