- Daniel Cole, “Thinking About an Optimal Coase Tax”
“Economists have spilled a lot of ink trying to specify what an ‘optimal’ Pigou tax would be… Haven’t any of these people read Coase (I mean read him carefully)? One of his explicit aims in ‘The Problem of Social Cost’ (1960) was to correct an important mistake in Pigou’s theory of externalities. Reconceiving externalities (convincingly) as joint- or social-cost problems, Coase argued that the socially efficient level of a Pigovian externality is hardly likely to be zero, as Pigou presumed….
“According to Coase, externalized costs should be reallocated to the producer up to that point where the costs of internalizing the next unit would exceed the social benefits (a standard MC = MB equation). Thus, an ‘optimal’ Coase tax would imply not the Polluter Pays Principle but the ‘Polluter Pays for Inefficient Externalities Principle.’”
Also recently at Cole’s Law, Economics, and Cycling blog: “Group Size, Transaction Costs, and the Robustness of Common Property Regimes” and “Sandel on Economics.”
- Elsewhere, Severin Borenstien has some nice words for energy efficiency rebound effects: “Rebound is a benefit of [energy efficiency] investment, not a drawback.”
- The new issue of Energy Policy includes a special section, “Past and Prospective Energy Transitions – Insights from History,” with 13 papers and an introduction by Roger Fouquet and Peter J.G. Pearson. (Access to articles will require a subscription, check with your library.)