Pigovian taxes which work in the small-number case
An appropriately conceived pollution tax can achieve a Pareto optimal equilibrium which is (1) stable in the presence of myopia, (2) not subject to strategic manipulation even in the small-number case, and (3) resistant to inefficient cost shifting by the participants when transaction costs are low. A considerable amount of confusion in the literature exists because different authors use different tax formulas (often implicitly) and different assumptions regarding conjectural behavior. Some of this confusion is cleared up by formally presenting various Pigovian tax formulas, explicitly considering whether there is Cournot or Stakleberg behavior, and comparing the properties of the various configurations. The author argues that charging for mitigated marginal cost rather than for actual damage avoids many pitfalls typically associated with Pignovian taxes. 15 references, 1 table.
- Research Organization:
- Univ. of California, Santa Cruz
- OSTI ID:
- 5744671
- Journal Information:
- J. Environ. Econ. Manage.; (United States), Vol. 12:2
- Country of Publication:
- United States
- Language:
- English
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