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Pigou and Clarke join hands

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  • Sinn, Hans-Werner

Abstract

This paper develops a simple, incentive compatible, allocation mechanism by means of which both polluters and pollutees will reveal their preferences so that the government can determine the Pareto optimal pollution level. The mechanism involves a combination of the Pigou tax and the Clarke tax. The two taxes are complementary and together provide a practical solution to the environment problem. The mechanism is applied to the problem of finding the optimal quality of river water which serves both as a waste disposal and as a source of drinking water.

Suggested Citation

  • Sinn, Hans-Werner, 1993. "Pigou and Clarke join hands," Munich Reprints in Economics 19839, University of Munich, Department of Economics.
  • Handle: RePEc:lmu:muenar:19839
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