According to economic theory, both regulation and corrective taxes are able to solve a problem of negative ext

Question

Which of the two do you think is better: regulation or taxes? Under what circumstances will both yield essentially the same outcome?

Answer 1

I think taxes are better because they directly increase a company's marginal cost, which reduces production.  Because they choose their production level based on marginal cost, they still produce efficiently.  Also, taxes produce revenue for the government, whereas regulation does not.  Regulation forces a company to produce below the point where marginal revenue intersects marginal cost, and this is inefficient.  They will produce essentially the same outcome when the tax is set to reduce production to the same point as regulation.