In a market experiencing negative externalities, which government intervention is most likely to increase allocative efficiency?

In a market with negative externalities, such as pollution from factories, the true cost of production is not reflected in the price of goods. This leads to overproduction and inefficiency because consumers and producers do not consider the harmful effects on society. One effective government intervention to increase allocative efficiency is to impose a tax on the harmful activity, such as a carbon tax on emissions. This tax encourages producers to reduce pollution and helps align private costs with social costs, making the market more efficient. For example, if a factory has to pay for each ton of pollution it produces, it may invest in cleaner technology to lower its tax burden, benefiting both the environment and society.