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Will a Pigovian tax always be equal to the marginal external cost of pollution at the socially
optimal output level?
Solution
No as proved by Coase theorem there are transanction costs involved. They include monetary
values for specifying, defining and enforcing property rights. There are high transanction costs
particularly when parties involved are large. It may leave thus society saddled with excessive
waste_waste over and above socially optimum level

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Will a Pigovian tax always be equal to the marginal external cost of.pdf

  • 1. Will a Pigovian tax always be equal to the marginal external cost of pollution at the socially optimal output level? Solution No as proved by Coase theorem there are transanction costs involved. They include monetary values for specifying, defining and enforcing property rights. There are high transanction costs particularly when parties involved are large. It may leave thus society saddled with excessive waste_waste over and above socially optimum level