The article discusses how financial constraints and fire sales can lead to inefficiencies in competitive economies. Two types of externalities are identified: distributive externalities from incomplete insurance markets and collateral externalities from price-dependent financial constraints. The researchers found three key factors that determine optimal taxes on financing and investment decisions to achieve efficient outcomes. Small changes in parameters can cause distributive externalities to flip sign, leading to either under- or over-borrowing. Financial amplification is not always needed to create inefficient fire-sale externalities.