Mike and Me on Externalities
| Peter Klein |
Mike Moffatt responds to my post on externalities. I questioned the Pigouvian approach of using taxes as efficient remedies for negative externalities. I said if, say, carbon taxes are a good idea, then Pigouvian taxes on a range of activities that generate negative externalities should be even better. And what about Pigouvian subsidies? I rarely see members of the Pigou club explain what activities they would subsidize, at what rates, and with what resources.
Mike’s response, based on more detailed comments here, is interesting, but to my mind misses the main point. Pigouvian taxes aren’t perfect, Mike says, but neither are income taxes or excise taxes or any other taxes. Fine, I say, but the relevant comparison isn’t between Pigouvian taxes and other taxes, but between Pigouvian taxes and alternative institutions for dealing with externalities such as cap-and-trade, common-law tort remedies, etc.
Mike counters that tort-based solutions simply aren’t feasible when there are large numbers of potential victims and tortfeasors. “My wife has asthma that is set off by air pollution. This causes real damages to my family. Who do I sue?”
It’s a fair question. Suing for damages in that situaiton might be impossible. It could be one of those cases in which there is real harm, but, sadly, the harm isn’t actionable. We currently treat many cases of noise pollution, “view” pollution, etc. this way. On the other hand, it might be possible to sue particular local polluters. It depends on the specifics of the case.
Mainly, though, I’d sidestep the question by pointing out that proponents of a tort-based system — or any system — aren’t obligated to explain exactly how it would work in every case. That’s an unreasonable burden of proof. By analogy, advocates for privatization of public services shouldn’t have to explain, ex ante, exactly how the market would provide education, or first-class mail, or health care, or whatever. We can predict, based on our experience with market solutions in other settings, how those services have been provided in other times and places, and so on, that market participants will come up with reasonable solutions. Likewise, common-law remedies have proved remarkably effective at dealing with other property-rights issues (see Hayek, Leoni, etc.). They might work here as well.