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Four legal approaches may be followed in attempting to channel technological development in a socially useful direction: specific directives, market incentive modifications, criminal prohibitions, and changes in decision-making structures. Specific directives involve the government‘s identifying one or more factors controlling research, development, or implementation of a given technology. Directives affecting such factors may vary from administrative regulation of private activity to government ownership of a technological operation. Market incentive modifications are deliberate alterations of the market within which private decisions regarding the development and implementation of technology are made. Such modifications may consist of imposing taxes to cover the costs to society of a given technology, granting subsidies to pay for social benefits of technology, creating the right to sue to prevent certain technological development, or easing procedural rules to enable the recovery of damages to compensate for the harm caused by destructive technological activity. Criminal prohibitions may modify technological activity in areas impinging on fundamental social values, or they may modify human behaviour likely to result from technological applications—for example, the deactivation of automotive pollution control devices in order to improve vehicle performance. Alteration of decision-making structures includes all possible modifications in the authority, constitution, or responsibility of private and public entities deciding questions of technological development and implementation. Such alterations include the addition of public-interest members to corporate boards, the imposition by a statute of duties on governmental decision-makers, and the extension of warranties in response to consumer action.
Effective use of these methods to control technology depends on whether or not the goal of regulation is the optimal allocation of resources. When the object is optimal resource allocation, that combination of legal methods should be used that most nearly yields the allocation that would exist if there were no external costs resulting from allocating resources through market activity. There are external costs when the price set by buyers and sellers of goods fails to include some costs, to anyone, that result from the production and use of the goods. Such costs are internalized when buyers pay them. Air pollution from motor vehicles imposes external costs on all those exposed to it, in the form of soiling, materials damage, and disease: these externalities result from failure to place a price on air, thus making it a free good, common to all. Such externalities lead to non-optimal resource allocation because the private net product and the social net product of market activity are not often identical. If all externalities were internalized, transactions would occur until bargaining could no longer improve the situation, thus giving an optimal allocation of resources at a given time.