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Pigou and Clarke join hands

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Abstract

This paper develops a simple, incentive compatible, allocation mechanism by means of which both polluters and pollutees will reveal their preferences so that the government can determine the Pareto optimal pollution level. The mechanism involves a combination of the Pigou tax and the Clarke tax. The two taxes are complementary and together provide a practical solution to the environment problem. The mechanism is applied to the problem of finding the optimal quality of river water which serves both as a waste disposal and as a source of drinking water.

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Authors and Affiliations

  1. NBER and Center for Economic Studies (CES), University of Munich, Ludwigstr. 33, DW-8000, Munich 22, Germany

    Hans-Werner Sinn

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  1. Hans-Werner Sinn
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Additional information

This paper is dedicated to Edwin von Böventer on the occasion of his sixtieth birthday. It is part of the NBER's research program on taxation. Comments by Ronnie Schöb and an anonymous referee are gratefully acknowledged.

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Sinn, HW. Pigou and Clarke join hands. Public Choice 75, 79–91 (1993). https://doi.org/10.1007/BF01053882

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  • DOI: https://doi.org/10.1007/BF01053882

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