Rent-Seeking and Its Implications for Pollution Taxation

Abstract

One of the fundamental insights gained from the study of economics comes from an understanding of how market prices, arising from private property and exchange, can motivate efficient responses to the problem of scarcity. Not surprisingly, when private property rights and market exchange are deemed not to be feasible, for either technological or political reasons, economists have overwhelmingly recommended that politically imposed prices be employed as surrogates for market prices. The most extensively discussed example of this in the literature is the use of pollution taxation as a means of motivating polluters to take the full cost of their polluting activities into account.¹

The comments of an anonymous referee were helpful in the preparation of this paper. Any mistakes, of course, are the sole responsibility of the author.