If sparks from trains sets adjacent farmland on fire, one way to internalise the externality is:
A)for the rail company to increase the volume of rail traffic
B)for the rail company to purchase the adjacent farmland
C)for the government to buy the farmland
D)for the rail company to lower their freight charges

Question

Quizplus · Accepted Answer

The best way to internalize the external cost of the sparks setting farmland on fire is for the rail company to purchase the adjacent farmland. This would make the rail company responsible for any damage caused by the sparks and incentivize the company to take necessary steps to reduce the risk of fires, such as installing spark arrestors or reducing train speeds in the area. Increasing rail traffic, lowering freight charges or having the government buy the farmland do not directly address the external cost and may not provide adequate incentives for the rail company to reduce the risk of fires.

If Sparks from Trains Sets Adjacent Farmland on Fire, One