Reference no: EM13105329

Various policy mechanisms can be used to correct these market failures

These corrective mechanisms can be broadly categorized by the number of parties involved

• Small numbers cases: Few parties are involved, say two or three
• Large numbers cases: Many parties are involved, perhaps thousands or millions

Small numbers cases are situations in which the number of involved parties is small enough to meaningfully engage in negotiation or litigation

When the number of involved parties is large, however, different policy mechanisms must be used

• For example, the number of parties affected by vehicle use, and the associated problems of air quality and congestion, reach into the hundreds of millions in this country alone. In these situations, liability and negotiation are often impractical

Policy mechanisms that are appropriate for such large numbers cases include:
- Directives
- Taxes
- Permits

An exception to relying on those mechanisms arises when many parties can be represented by a single litigant or negotiator, such as in a class-action lawsuit

Which approach would you use in a large numbers case and why?