The Use of Standards and Prices for Protection of the Environment

Abstract

In the Pigouvian tradition, economists have frequently proposed the adoption of a system of unit taxes (or subsidies) to control externalities, where the tax on a particular activity is equal to the marginal social damage it generates. In practice, however, such an approach has rarely proved feasible because of our inability to measure marginal social damage.

The authors are members of the faculty at Princeton University. They are grateful to the Ford Foundation whose support greatly facilitated the completion of this paper.