I find this criticism not so good in general, because there are many externalities and “measuring” them means nothing. To some extent an externality is simply “what the market does not measure for us”, so Pigovianism is more a framework than a theory.
On the other hand, the lack of Pigovian taxes on carbon (the canonical case where the framework is almost a theory by itself) and the incredible roundabouts to avoid the simple and well known solution proves the utter disgrace that are our social systems.
I find this criticism not so good in general, because there are many externalities and “measuring” them means nothing. To some extent an externality is simply “what the market does not measure for us”, so Pigovianism is more a framework than a theory.
Right, quantifying the externalities is challenging. Privatisation of public goods makes the market measure more for us. Instead of setting up regulations to prevent overfishing, the oceans could be privatised, and then the companies owning them would have an incentive to prevent the collapse of fish stocks (otherwise, they would go out of fish, and therefore would no longer be able to charge fishing companies).
On the other hand, the lack of Pigovian taxes on carbon (the canonical case where the framework is almost a theory by itself) and the incredible roundabouts to avoid the simple and well known solution proves the utter disgrace that are our social systems.
I think global warming may well be beneficial in many regions. However, at least for countries wanting to decrease it, I suppose taxing CO2eq would make sense. One challenge is that people with lower income may spend relatively more on energy, so they would be relatively more affected by the higher energy prices resulting from taxing CO2eq, altghough this could be mitigated by disproportionally directing the tax revenue to such people. Another challenge is that countries taxing CO2eq would start importing more energy from countries that do not tax it.
“Instead of setting up regulations to prevent overfishing, the oceans could be privatised, and then the companies owning them would have an incentive to prevent the collapse of fish stocks”
If you do not put physical barriers, fish would move across different properties, making overfishing profitable anyway. It is like two “private” oil fields over the same oil reservoir.
“I think global warming may well be beneficial in many regions. However, at least for countries wanting to decrease it, I suppose taxing CO2eq would make sense”.
It is the canonical case for an immediate Pigovian tax: the externality is global, uniform, circulates in the atomosfere… Regarding imports, you can charge a carbon tariff.
If you do not put physical barriers, fish would move across different properties, making overfishing profitable anyway. It is like two “private” oil fields over the same oil reservoir.
Profitable for who? I am thinking companies owning some waters would charge fishing companies proportionally to how much they capture in their waters. Overfishing would eventually lead to no fish being captured in their areas, and therefore no revenue from fishing.
It is the canonical case for an immediate Pigovian tax: the externality is global, uniform, circulates in the atomosfere… Regarding imports, you can charge a carbon tariff.
The increase in the death from non-optimal temperature is not uniform.
If fish move across properties, your own overfishing affects fish density in neighbouring properties. It is like two oil wells extracting from a common reservoir. Of course, both “privatization” and “Coasian bargaining” are better than Pigouvian taxation, but none of this mechanism is necessarily available.
I remind you the entire sequence:
Theorems of welfare economics: under the hypotheses of the theorem all Pareto optimal outcomes can be obtained by market clearing and [tailored] lump sum taxation. Unfortunately, to “lump sum” tax you need private information on productivity, so the best you get is “pareto optimal” with the usual deadweight loss of income taxation.
Property is not perfect: there are externalities. Then you try to use “Coasian bargaining”, for small cases where externalities and property is well defined.
Multilateral bargaining is too complex, or property rights are not easy to establish: Pigouvian taxation on the externality as long is easy to measure and you have some sovereign to impose it.
Now, a funny thing is that on one side you complain on the lack of Pigouvian mechanisms, and then even for the canonical case of the carbon tax, soon you find arguments against it (!). Yes, of course, the total value of the externality is the world average impact of carbon emissions: there are winners and losers. The consensus based on detailed simulation is that the global externality of an additional molecule of CO2 is negative (at least given the current location of human population: given how costly and destabilising is large human reallocation, better not to remove that hypothesis).
I find this criticism not so good in general, because there are many externalities and “measuring” them means nothing. To some extent an externality is simply “what the market does not measure for us”, so Pigovianism is more a framework than a theory.
On the other hand, the lack of Pigovian taxes on carbon (the canonical case where the framework is almost a theory by itself) and the incredible roundabouts to avoid the simple and well known solution proves the utter disgrace that are our social systems.
Thanks, Arturo.
Right, quantifying the externalities is challenging. Privatisation of public goods makes the market measure more for us. Instead of setting up regulations to prevent overfishing, the oceans could be privatised, and then the companies owning them would have an incentive to prevent the collapse of fish stocks (otherwise, they would go out of fish, and therefore would no longer be able to charge fishing companies).
I think global warming may well be beneficial in many regions. However, at least for countries wanting to decrease it, I suppose taxing CO2eq would make sense. One challenge is that people with lower income may spend relatively more on energy, so they would be relatively more affected by the higher energy prices resulting from taxing CO2eq, altghough this could be mitigated by disproportionally directing the tax revenue to such people. Another challenge is that countries taxing CO2eq would start importing more energy from countries that do not tax it.
“Instead of setting up regulations to prevent overfishing, the oceans could be privatised, and then the companies owning them would have an incentive to prevent the collapse of fish stocks”
If you do not put physical barriers, fish would move across different properties, making overfishing profitable anyway. It is like two “private” oil fields over the same oil reservoir.
“I think global warming may well be beneficial in many regions. However, at least for countries wanting to decrease it, I suppose taxing CO2eq would make sense”.
It is the canonical case for an immediate Pigovian tax: the externality is global, uniform, circulates in the atomosfere… Regarding imports, you can charge a carbon tariff.
Profitable for who? I am thinking companies owning some waters would charge fishing companies proportionally to how much they capture in their waters. Overfishing would eventually lead to no fish being captured in their areas, and therefore no revenue from fishing.
The increase in the death from non-optimal temperature is not uniform.
If fish move across properties, your own overfishing affects fish density in neighbouring properties. It is like two oil wells extracting from a common reservoir. Of course, both “privatization” and “Coasian bargaining” are better than Pigouvian taxation, but none of this mechanism is necessarily available.
I remind you the entire sequence:
Theorems of welfare economics: under the hypotheses of the theorem all Pareto optimal outcomes can be obtained by market clearing and [tailored] lump sum taxation. Unfortunately, to “lump sum” tax you need private information on productivity, so the best you get is “pareto optimal” with the usual deadweight loss of income taxation.
Property is not perfect: there are externalities. Then you try to use “Coasian bargaining”, for small cases where externalities and property is well defined.
Multilateral bargaining is too complex, or property rights are not easy to establish: Pigouvian taxation on the externality as long is easy to measure and you have some sovereign to impose it.
Now, a funny thing is that on one side you complain on the lack of Pigouvian mechanisms, and then even for the canonical case of the carbon tax, soon you find arguments against it (!). Yes, of course, the total value of the externality is the world average impact of carbon emissions: there are winners and losers. The consensus based on detailed simulation is that the global externality of an additional molecule of CO2 is negative (at least given the current location of human population: given how costly and destabilising is large human reallocation, better not to remove that hypothesis).