Internalizing Externality in the Case of Joint and Separate Productions: Property Rights Regulation as the Public Economy Solution

Externalities as a market failure hinder markets to allocate resources effectively by causing a loss of economic efficiency. Internalizing externalities through free market system without government interventions is limited. Public solutions are particularly important in the use of public resources by the manufacturers affecting each other mutually and choosing to act together or separately. Regulation of property rights as a public solution both increases the success of market solution and enables the compensation of the external effects, since it sets the initial conditions of markets.