Beyond Pigou: Externalities and Civil Society in the Supply-Demand Framework

19 Pages Posted: 6 Apr 2023

See all articles by Casey B. Mulligan

Casey B. Mulligan

University of Chicago; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: April 5, 2023

Abstract

The extent of voluntary cooperation in the presence of externalities is shown as an equilibrium outcome in the supply and demand framework. The analysis uses familiar ingredients to provide a new way of understanding the results of the extensive literature beginning with Buchanan, Coase, Ostrom, Shapley, Telser, Tullock, and Williamson showing that a Pigouvian tax is not the only alternative to independently acting individuals who are coordinated merely through distorted market prices. Voluntary cooperation can have a far different incidence than Pigouvian taxes and subsidies while changing the character of the costs resulting from externalities. The paper discusses applications including forest management, volume discounts, residential associations, energy policy, the scope of planning of household activities, and the role of workplaces in preventing infectious disease.

JEL Classification: D62,D71,H23,L25

Suggested Citation

Mulligan, Casey B., Beyond Pigou: Externalities and Civil Society in the Supply-Demand Framework (April 5, 2023). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2023-51, Available at SSRN: https://ssrn.com/abstract=4410977 or http://dx.doi.org/10.2139/ssrn.4410977

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