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Most of the criticism of the Pigouvian tax relates to the determination of the tax and the implementation. Pigou and Friedrich Hayek point out that the assumption that the government can determine the marginal social cost of a negative externality and convert that amount into a monetary value is a weakness of the Pigouvian tax.
Arthur Cecil Pigou (/ ˈ p iː ɡ uː /; 18 November 1877 – 7 March 1959) was an English economist. As a teacher and builder of the School of Economics at the University of Cambridge , he trained and influenced many Cambridge economists who went on to take chairs of economics around the world.
A Pigovian tax (also called Pigouvian tax, after economist Arthur C. Pigou) is a tax imposed that is equal in value to the negative externality. In order to fully correct the negative externality, the per unit tax should equal the marginal external cost. [ 56 ]
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Related efforts to achieve socially optimal quantities of externalities have long been a focus of microeconomic research, most famously by Ronald Coase [1] and Arthur Pigou. [2] Externality problems persist despite past remedies, which makes newer approaches such as the efficient voter rule important.
The Downs–Thomson paradox (named after Anthony Downs and John Michael Thomson), also known as the Pigou–Knight–Downs paradox (after Arthur Cecil Pigou and Frank Knight), states that the equilibrium speed of car traffic on a road network is determined by the average door-to-door speed of equivalent journeys taken by public transport or the next best alternative.
The distinction between pecuniary and technological externalities was originally introduced by Jacob Viner, who did not use the term externalities explicitly but distinguished between economies (positive externalities) and diseconomies (negative externalities). [1] Under complete markets, pecuniary externalities offset each other. For example ...
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