Tax Free-Riding Carbon Polluters

It’s been almost a century since the British economist Arthur Pigou floated the idea that turned his name into an adjective. In “The Economics of Welfare,” published in 1920, Pigou pointed out that private investments often impose costs on other people. Consider this example: A man walks into a bar. He orders several rounds, downs them, and staggers out. The man has got plastered, the bar owner has got the man’s money, and the public will get stuck with the tab for the cops who have to fish the man out of the gutter. In Pigou’s honor, taxes that attempt to correct for this are known as Pigovian, or, if you prefer, Pigouvian (the spelling remains wobbly). Alcohol taxes are Pigovian; so are taxes on cigarettes. The idea is to incorporate into the cost of what might seem a purely personal choice the expenses it foists on the rest of society.