1 On Pigouvian Taxes and Implementability : Information , Monitoring and Efficiency

Standard microeconomic theory proves that, when a externality occurs, the solution of the social cost problem requires that the producers face an additional cost identical to the marginal damage caused by them at the efficient level of the externality. Pigouvian taxes, and adequately designed property rights markets, are both political instruments to put this theory into practice. Nevertheless, although Pigouvian taxes are convincing in the context of general theory, they are rare, if they do exist, in the real world. In common practice, command and control rather than markets and incentives are the preferred devices of public agencies seeking to cope with externality problems.