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When the “environmental revolution” arrived in the 1960s, economists were ready and waiting. The economic literature contained an apparently coherent view of the nature of the pollution problem together with a compelling set of implications for public policy. In short, economists saw the problem of environmental degradation as one in which economic agents imposed external costs upon society at large in the form of pollution. With no “prices” to provide the proper incentives for reduction of polluting activities, the inevitable result was excessive demands on the assimilative capacity of the environment. The obvious solution to the problem was to place an appropriate “price,” in this case a tax, on polluting activities so as to internalize the social costs. Marshall and Pigou had suggested such measures many decades earlier. Moreover, pollution and its control through so-called Pigouvian taxes had become a standard textbook case of the application of the principles of microeconomic theory. Economists were thus ready to provide counsel to policy makers on the design of environmental policy. (en) |
