Efficiency and Externalities in an Open-Ended Universe: A Modern Austrian Perspective

... one must concede ... that objective cost data do not enable us to calculate the ideal Pigouvian taxsubsidy figures to deal with externalities ... (Baumol, 1970, p. 1211)

   In spite of his recognition of this point, he concludes in favor of the Pigouvian approach:

it seems to me that the general approach, utilized in full consciousness of the imperfection of our information, still offers us the most promising means available to regulate many of our externalities problems. (Baumol, 1970, p. 1211)

The economic problem of society is thus not merely a problem of how to allocate ‘given’ resources ... It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge which is not given to anyone in its totality. [1948 (1945A), pp. 77-78]

The informational requirements of taxation and regulatory approaches are formally identical ... And the informational requirements for optimal regulation are simply those for optimal nonprice resource allocation ...

Taxation of an activity is often proffered as a ‘market’ approach, which substitutes for a regulatory or interventionist approach. Economists mislead themselves and their readers[]by speaking of ‘tax prices.’ The only shared feature that taxes have with prices is their dimensionality. Taxes do not result from a market process, nor do they reflect allocational decisions of resource owners ... In other words, taxation is a method of intervening, not an alternative to intervention or nonmarket allocation. (O’Driscoll and Rizzo, p. 141-142)