Microeconomics › Section L · Environmental protection and negative externalities › Topic L.3
Pollution taxes, permits, and property rights
Where command orders, markets bargain: put a price on the harm - through a tax, a tradable permit, or a property right - and let every firm decide for itself how much cleanup is worth doing. The same total reduction emerges at the lowest possible cost, because the cheap cleaners clean and the expensive ones pay.
In this topic
- Internalising the externality
- Pigouvian taxes
- Worked example: taxing the river right
- Pigouvian subsidies
- Cap-and-trade
- Worked example: two plants, one permit market
- Taxes versus permits
- The Coase theorem
- Why Coase rarely scales
- Common mistakes to avoid
- Key takeaways
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