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Two common drawbacks of Pigouvian subsidy mentioned in the literature are related to
monetisation and measurement of social cost (Baumol) and reciprocity of social cost (Coase).
What alternatives to Pigouvian taxes are proposed in the literature? Have any of such alternative
measures been implemented in practice?
Solution
The most obvious answer is Coasian bargaining. What Coase showed in his famous "The
Problem of Social Cost" is that if there are no transaction costs and if utility is transferable then
it suffices to allocate property rights

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