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Pigou, Knight, Diminishing Returns, And Optimal Pigouvian Congestion Tolls

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  • McDONALD, JOHN F.

Abstract

Arthur Pigou introduced the iconic two-road model in the first edition of The Economics of Welfare (1920), and it has been thought that this model was intended to demonstrate the need for Pigouvian taxes to mitigate traffic congestion. However, Pigou’s intention was to show that efficient output for industries subject to decreasing returns required a tax on output. Pigou was incorrect, but the two-road model (correctly considered) became the starting point for the analysis of traffic congestion in the 1950s. This paper recounts the doctrinal history of decreasing returns industries and the two-road model.

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  • McDONALD, JOHN F., 2013. "Pigou, Knight, Diminishing Returns, And Optimal Pigouvian Congestion Tolls," Journal of the History of Economic Thought, Cambridge University Press, vol. 35(3), pages 353-371, September.
    • Handle: RePEc:cup:jhisec:v:35:y:2013:i:03:p:353-371_00
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    Cited by:

    1. Vanoutrive, Thomas & Zijlstra, Toon, 2018. "Who has the right to travel during peak hours? On congestion pricing and ‘desirable’ travellers," Transport Policy, Elsevier, vol. 63(C), pages 98-107.
    2. Ariane Dupont Kieffer & Sylvie Rivot & Jean Loup Madre, 2021. "The penetration of engineering by economics : McFadden (1974) and the transformation of road demand estimation," Post-Print hal-03209945, HAL.
    3. Button, Kenneth, 2020. "The Transition From Pigou’S Ideas On Road Pricing To Their Application," Journal of the History of Economic Thought, Cambridge University Press, vol. 42(3), pages 417-438, September.
    4. Dupont-Kieffer, Ariane & Rivot, Sylvie & Madre, Jean-Loup & Assistant, JHET, 2020. "The Penetration Of Engineering By Economics: Mcfadden (1974) And The Transformation Of Road Demand Estimation," OSF Preprints kucbt, Center for Open Science.

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