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externality
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the uncompensated impact of one person's actions on the well-being of a bystander
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internalizing the externality
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altering incentives so that people take account of the external effects of their actions
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Coase theorem
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the proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own
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transaction costs
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the costs that parties incur in the process of agreeing to and following through on a bargain
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corrective tax
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a tax designed to induce private decision makers to take account of the social costs that arise from a negative externality.
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