Our original article noted that auctions of pollution rights could increase a tendency toward monopoly in the offending industry. Professor Oates has provided some insightful comments in arguing for auctions rather than Pigouvian taxes, but the validity of the argument in our original article is not affected. Oates's suggestions for pricing externalities in the real world are a welcome addition to the discussion, but there are some reasons to believe that his approach would not be optimal under all circumstances.
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References
1.
HolcombeR. G.MeinersR. E. (1980) “Corrective taxes and auctions of rights in the control of externalities.”Public Finance Q. 8(July): 345–349.
2.
OatesW. E.“Corrective taxes and auctions of rights in the control of externalities: Some further thoughts.”Public Finance Q. (this issue).
