Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/72579
Authors: 
Vetter, Henrik
Year of Publication: 
2013
Series/Report no.: 
Economics Discussion Papers 2013-29
Abstract: 
The efficiency of the Pigouvian tax suggests that price-based regulation is the proper benchmark for efficient regulation. However, results due to Carlton and Loury (1980, 1986) question this; when harm depends on scale effects a pure Pigou tax is inefficient regulation in the long run. In this note we make precise that there is an efficient tax scheme for controlling harm as long as social optimum exists. In particular, the efficient tax scheme is based on a tax rate equal to marginal harm. Hence, price regulation is the right benchmark for regulation even in the presence of scale effects in the harm function.
Subjects: 
externalities
scale effects
Pigou-taxes
JEL: 
D61
D62
Creative Commons License: 
http://creativecommons.org/licenses/by/3.0/
Document Type: 
Working Paper

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