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Corrective Taxes and Auctions of Rights in the Control of Externalities

Author

Listed:
  • Randall G. Holcombe

    (Auburn University)

  • Roger E. Meiners

    (Texas A&M University)

Abstract

Auctions of pollution rights have sometimes been suggested as an alternative to corrective taxes. These two methods of pollution control are not, in general, equivalent, however. When pollution rights are auctioned, the right to pollute is equivalent to the right to produce, so the auction of rights raises the possibility that the competitiveness of the market could be reduced. Individual producers have an incentive to purchase large amounts of pollution rights in order to gain some degree of monopoly power over the market. This possibility does not exist when corrective taxes are used instead.

Suggested Citation

  • Randall G. Holcombe & Roger E. Meiners, 1980. "Corrective Taxes and Auctions of Rights in the Control of Externalities," Public Finance Review, , vol. 8(3), pages 345-349, July.
    • Handle: RePEc:sae:pubfin:v:8:y:1980:i:3:p:345-349
    DOI: 10.1177/109114218000800306
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    References listed on IDEAS

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    1. Baumol, William J, 1972. "On Taxation and the Control of Externalities," American Economic Review, American Economic Association, vol. 62(3), pages 307-322, June.
    2. R. H. Coase, 2013. "The Problem of Social Cost," Journal of Law and Economics, University of Chicago Press, vol. 56(4), pages 837-877.
    3. Buchanan, James M, 1969. "External Diseconomies, Corrective Taxes, and Market Structure," American Economic Review, American Economic Association, vol. 59(1), pages 174-177, March.
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    Cited by:

    1. Jon D. Harford, 1984. "Relatively Efficient Pollution Standards Under Perfect Competition," Public Finance Review, , vol. 12(2), pages 183-195, April.
    2. Wallace E. Oates, 1981. "Corrective Taxes and Auctions of Rights in the Control of Externalities: Some Further Thoughts," Public Finance Review, , vol. 9(4), pages 471-478, October.
    3. Svendsen, Gert Tinggaard & Christensen, Jan Lien, 1999. "The US SO2 auction: analysis and generalization," Energy Economics, Elsevier, vol. 21(5), pages 403-416, October.

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