Example of a positive or a negative externality

Reference no: EM13521139

The owner of a tropical forest harvests timber so as to maximize his own profit from the land. This forested land also provides habitat for wild beehives that pollinate the crops of surrounding farmers. Assume that the number of bees and therefore the magnitude of the pollination services provided are proportional to the size of the intact forest habitat on the landowner's property. In the absence of an agreement between the landowner and his neighbors, is he likely to harvest too much or too little of his timber at any given time? Characterize this as an example of a positive or a negative externality.

Reference no: EM13521139

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