A radically different method of limiting the amount of a negative externality to the level that is socially optimal is by the sale of pollution rights by the government (see Case Study 12-3). Under such a system, the government decides on the amount of pollution that it thinks is socially desirable (based on the benefits that result from the activities that generate the pollution) and then auctions off licenses to firms to generate pollution up to the specified amount. Pollution costs are thus internalized (i.e., considered as part of regular production costs) by firms, and the allowed amount of pollution is used in activities in which it is most valuable. This and other methods of dealing with externalities, however, are based on the assumption that the private and social benefits and costs of any activity leading to externalities can be measured or estimated fairly accurately. This is seldom the case. NEVERTHELESS, the policies that we have examined do give an indication of what needs to be measured and the procedure for reaching socially optimal decisions or policies in cases involving externalities.