One of my favorite (weird way of putting it) examples of a negative externality is unhealthy food. The production of unhealthy food yields numerous social costs; costs to health care, decreased productivity, and a vast array of health problems such as obesity, heart disease, high blood pressure, etc.
There are many ways that food is produced unsuitably. For example: beef. The average American beef farmer "produces" beef by feeding them a diet of corn and raising them in compact feedlots. Because of the cramped, unisanitary conditions they are kept in, if one cow has a disease - all the cows have a disease. Also if farmers would take their cows off the corn diet and grass-feed them for just 5 days before slaughter, they would shed 80% of the E. coli in their gut. But this would not be profitable for the farmer. And as a result of decreased production, beef prices would likely rise 5-10% which would cause dismay to the average consumer.
In today's society, what most consumers look for is inexpensive food. Food production has adapted by creating ways to produce more of fewer foods to reduce the apparent cost to consumers and increase availability of those foods.
I could dive into a rant about how almost everything in the average supermarket is unhealthy but I'll spare you. :)
I don't believe the problem can be fixed by applying the Coase theorem. The reasoning behind that belief?
It hasn't worked yet!
Farmers and food creators don't have any incentive not to produce foods in these ways (in fact they have incentive to do it - money!) and most of the general public is either uneducated about the food they are eating or driven by the lower prices offered. If applying the Coase theorem to this negative externality I would say it would - and has so far - failed.
That's all for now...
Ciao!
And an intersting paper on externalities in industrial food production from the Dartmouth Law Journal:http://www.dartmouthlawjournal.org/archives/9.3.6.pdf
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