Externalities as Commodities: Comment

Abstract

In this Review in 1967, F. Trenery Dolbear constructed a simple general equilibrium model which demonstrated, among other things, that Pigouvian unit effluent taxes could not be expected to be both Pareto optimal and exactly compensatory to pollution sufferers. Calling this result Dolbear's "negative conclusion," Robert Meyer set out in his 1971 article to generalize Dolbear's model and derive conditions under which Pigouvian taxes would achieve both goals simultaneously. Meyer established a test which he asserted would tell us when both goals are attainable simultaneously. And Meyer suggested that when Pigouvian taxes are unable to achieve both goals simultaneously, the failure is the result of some sort of nonconvexity, p. 737. The purpose of this note is first to point out that Meyer is mistaken in thinking that the source of Dolbear's negative conclusion is in lack of convexity conditions and then to point out some of the role convexity actually plays in pollution problems.

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