Environmental Protection: A Social Choice

The designing and implementation of market-based instruments (especially the Pigouvian tax) involves huge transaction cost since it requires (therefore Coasen theorem fails) the estimates of marginal damages and abatement cost functions. Thus the externality created by environmental pollution (i.e. water pollution) affects people that may be large in numbers; therefore the cost of estimating the damage function can be very high. Moreover, it is also possible that two locations may have the same pollution concentrations o