A History of Pricing Pollution (Or, Why Pigouvian Taxes are not Necessarily Pigouvian)

Abstract

Smith, and participants in a 2020 virtual History of Economics Society session for valuable comments. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Externalities as the status quo: Federal application of environmental charges in the United States

“…(p. 35)Fullerton then proceeds to build upon this argument by noting that if the government's objective is cost recovery, then a small tax broadly applied could achieve the same goal without the administrative overhead associated with individual taxes. However, this stands in contrast to arguments that environmental charges act as a Pigouvian tax (or are Pigouvian in nature) even when not explicitly constructed as such (Scharff, 2018), or that environmental charges have been constructed in a Pigouvian tradition (Banzhaf, 2020; Barthold, 1994).…”

“…The list of policies developed (Table 2) is significantly shorter than previous works (Barthold, 1994;Fullerton, 1996;KPMG, 2017). Despite suggestions that environmental charges may be designed along Pigouvian concepts (Banzhaf, 2020;Barthold, 1994), only the Gas Guzzler Tax and tax on ozone depleting chemicals, which did not meet the criteria for inclusion as an environmental change, were Pigouvian in nature. Indeed, the design of the identified environmental charges suggest that the intended goal is cost recovery in agreement with the polluter pays principle for environmental externalities that may occur (e.g., oil spills) or are an ongoing concern.…”

“…Returning to the suggestion that federal environmental charges in the United States are constructed in a Pigouvian tradition (Banzhaf, 2020; Barthold, 1994), or act as a Pigouvian tax (Scharff, 2018), there is little evidence to suggest that this is the case. Indeed, the structure of the environmental charges themselves suggests that they are not intended to be Pigouvian in nature.…”

Non-Parametric Tests of the Tragedy of the Commons

“…Although economists have studied the commons problem for more than a century, Hardin's (1968) coining of the term "tragedy of the commons" in the general scientific literature helped to garner attention from ecologists, other environmental scientists, non-economics social scientists, legal scholars, and systems modelers (Banzhaf 2020, Frischman et al 2019. Subsequently, Ostrom…”

Policy Instrument Choice with Coasean Provision of Public Goods

“…When a policy is implemented in an otherwise unregulated setting, it establishes rights and responsibilities that can serve as de facto property rights, a mechanism for reducing 1 See Banzhaf (2020) for an interesting historical analysis of whether initial applications of Pigouvian taxes to pollution problems were driven by Pigou's original contribution or whether they emerged separately in other natural resource settings and were later attributed back.…”