ANT-3451 Lecture Notes - Lecture 6: Pigovian Tax, Consumption Tax, Environmental Policy
Document Summary
Negative externalities: environmental problems arise in unregulated free market. Correcting externalities: consumption tax (pigouvian taxes) Added cost applied to a good or service thought to be generating a negative externality: negative pigouvian tax > subsidies. Reward people for making choices that society considers desirable; Encourages private transactions that have positive externalities: problems with consumption taxes: Political leaders don"t want to upset constituents that may not favor a tax: possibly politically damaging. Positive externalities: private transactions may produce positive bene ts for a third party, transfer payments from society (government) to an institution or individual in return for a behavioral choice. Because third parties aren"t paying for that bene t the good is undersupplied. Under provision of a good is socially ine cient. Examples: production of honey > pollination of local crops, vaccines given to keep your child from getting sick > reduces risk of spreading sickness to others. Monday, october 30, 2017: regulating practices of behaviors of rms or consumers.
