Externalities, public goods, and property rights revisited: regulations based on traditional B–C analyses are too lax

Abstract

ABSTRACTPigou advocated for marginal damage taxes on negative externalities, Samuelson described the conditions for optimal pure public goods provision, and both Pigou and Samuelson believed that non-excludability required government intervention/provision, respectively. However, Coase argued that government intervention is sometimes unnecessary. A previously unexplored relationship between externalities, public goods, and property rights implies that non-excludable goods – particularly environmental goods – are undervalued by the methods currently employed by economists. This implies that Pigouvian taxes should generally be larger than currently thought, and that command and control regulations are too lax. The Coase Theorem is seen to have less policy relevance than is typically supposed.