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Politics, Policy, and the Pigovian Margins

In: Classic Papers in Natural Resource Economics

Author

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  • James M. Buchanan

Abstract

Since Sidgwick and Marshall, and notably since Pigou’s The Economics of Welfare, economists have accepted the presence or absence of external effects in production and consumption as a primary criterion of market efficiency. When private decisions exert effects that are external to the decision-maker, “ideal” output is not obtained through the competitive organisation of economic activity even if the remaining conditions necessary for efficiency are satisfied. The market “fails” to the extent that there exist divergencies between marginal private products and marginal social products and/or between marginal private costs and marginal social costs. This basic Pigovian theorem has been theoretically refined and elaborated in numerous works, but its conceptual validity has rarely been challenged.2 The purpose of this paper is to bring into question a fundamental implication of this aspect of theoretical welfare economics, namely, the implication that externalities are either reduced or eliminated by the shift of an activity from market to political organisation. I shall try to show that this implication will stand up to critical scrutiny only under certain highly restricted assumptions about human behaviour in modern political systems. When these restrictive assumptions are modified, the concept of divergence between marginal “social” product (cost) and marginal private product (cost) loses most of its usefulness.3

Suggested Citation

  • James M. Buchanan, 1962. "Politics, Policy, and the Pigovian Margins," Palgrave Macmillan Books, in: Chennat Gopalakrishnan (ed.), Classic Papers in Natural Resource Economics, chapter 10, pages 204-218, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-52321-0_11
    DOI: 10.1057/9780230523210_11
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    Citations

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    Cited by:

    1. López Edward J. & Clark J.R., 2013. "The Problem with the Holdout Problem," Review of Law & Economics, De Gruyter, vol. 9(2), pages 151-167, September.
    2. Livani, Talajeh & Graham, Carol, 2019. "Do social protection programs improve life satisfaction? Evidence from Iraq," World Development Perspectives, Elsevier, vol. 16(C).
    3. Alain Marciano, 2019. "Buchanan and public finance: The tennessee years," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 32(1), pages 21-46, March.
    4. Bernholz, Peter, 1997. "Property rights, contracts, cyclical social preferences and the Coase theorem: A synthesis," European Journal of Political Economy, Elsevier, vol. 13(3), pages 419-442, September.
    5. Marciano, Alain, 2011. "Buchanan on externalities: An exercise in applied subjectivism," Journal of Economic Behavior & Organization, Elsevier, vol. 80(2), pages 280-289.
    6. Hummel Jeffrey Rogers & Lavoie Don, 1994. "National Defense And The Public-Goods Problem," Journal des Economistes et des Etudes Humaines, De Gruyter, vol. 5(2-3), pages 1-26, June.
    7. James M. Buchanan, 1988. "MarketFailure and Political Failure," Cato Journal, Cato Journal, Cato Institute, vol. 8(1), pages 1-13, Spring/Su.
    8. Bromley, Daniel Wood, 1969. "Economic Efficiency in Common Property Natural Resource Use: A Case Study of the Ocean Fishery," Working Papers 233010, United States Bureau of Commercial Fisheries, Division of Economic Research.
    9. Sebastian Berger, 2013. "The Making of the Institutional Theory of Social Costs: Discovering the K. W. Kapp and J. M. Clark Correspondence," American Journal of Economics and Sociology, Wiley Blackwell, vol. 72(5), pages 1106-1130, November.
    10. Alain Marciano, 2018. "From Highway to Clubs: Buchanan and the Pricing of Public Goods," Post-Print hal-02550420, HAL.
    11. Peter Boettke & Alain Marciano, 2015. "The past, present and future of Virginia Political Economy," Public Choice, Springer, vol. 163(1), pages 53-65, April.
    12. Roger Congleton, 2014. "The contractarian constitutional political economy of James Buchanan," Constitutional Political Economy, Springer, vol. 25(1), pages 39-67, March.
    13. Michael Brooks, 1997. "Some Reflections on The Calculus of Consent," Constitutional Political Economy, Springer, vol. 8(1), pages 3-13, March.
    14. Peter Coughlin, 1989. "Economic policy advice and political preferences," Public Choice, Springer, vol. 61(3), pages 201-216, June.
    15. Boettke, Peter & Smith, Daniel, 2011. "Robust political economy and the Federal Reserve," MPRA Paper 32092, University Library of Munich, Germany.
    16. E. West & R. Staaf, 1981. "Extra-governmental powers in public schooling: The unions and the courts," Public Choice, Springer, vol. 36(3), pages 619-637, January.
    17. Jing Lan & Diana Mangalagiu & Yuge Ma & Thomas F. Thornton & Dajian Zhu, 2020. "Modelling consumption behaviour changes in a B2C electric vehicle-sharing system: a perceived systemic risk perspective," Climatic Change, Springer, vol. 160(4), pages 655-669, June.
    18. James D. Gwartney, 2014. "The Impact of James Buchanan on My Career and the Economics Profession," Southern Economic Journal, John Wiley & Sons, vol. 80(4), pages 898-904, April.
    19. Adam Martin, 2018. "The limits of liberalism: Good boundaries must be discovered," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 31(2), pages 265-276, June.

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