As the infographic below shows, there are various ways of using law to reduce a harm or “negative externality,” to use the lingo of economics. These methods include (1) flat out prohibition, (2) Pigovian taxes, (3) contracts, and (4) doing nothing, i.e letting the market determine what the optimal level of harm is. (In the case of plastic bags, it looks like method #4 is the dominant approach.) Which method is best?
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