1. David W. Pearce and Edward B. Barbier (2000) Blueprint for a Sustainable Economy. London: Earthscan, p. 157, also describe this viciouscycle: “Important environmental values are generally not reflected in markets, and despite much rhetoric to the contrary, are routinely ignored in policy decisions. Institutional failures, such as the lack of property rights, inefficient and corrupt governance, political instability and the absence of public authority or institutions, also compound this problem. The result is economic development that produces excessive environmental degradation and increasing ecological scarcity. As we have demonstrated, the economic and social costs associated with these impacts can be significant.”
2. For example, William J. Baumol and Wallace E. Oates (1988) The Theory of Environmental Policy, 2nd edn. Cambridge and New York: Cambridge University Press, p. 1 state: “the problem of environmental degradation is one in which economic agents imposed external costs upon society at large in the form of pollution. With no prices to provide the proper incentives for reduction of pollution activities, the inevitable result was excessive demands on the assimilative capacity of the environment. The obvious solution to the problem was to place an appropriate price, in this case a tax, on polluting activities so as to internalize the social costs.” The recognition that “external costs”, such as the damages caused by pollution and other forms of environmental degradation, are not routinely reflected in the market price of goods and services has a long tradition in economics.
3. See, for example, Arthur C. Pigou (1962) The Economics of Welfare, 4th edn. London: MacMillan;
4. and Alfred Marshall (1949) Principles of Economics: An Introductory Volume, 8th edn. London: MacMillan. In fact, the use of a tax on polluting activities so as to “internalize the social costs” is often referred to as a Pigouvian tax, in honor of Pigou who introduced this concept in the first edition of his book, published in 1920, when describing what he called the “incidental uncharged disservices” that occur when a private producer builds a factory, such as higher congestion, loss of light, and a loss of health for the neighbors.
5. See, for example, David W. Pearce, Anil Markandya and Edward B. Barbier (1989) Blueprint for a Green Economy. London: Earthscan,