The following was my last contribution on the altinst mailing list on the question of pollution taxes and how to run them.

Melding ideas and objections I have heard here, I propose the following modification. There exist tradable pollution rights. Pollution price elections are held periodically. Each voter proposes a price per unit pollution. They thus direct the government to enter the pollution market as either buyer or seller. The median of the voted prices is the rate at which the government buys or sells. When the government buys rights they are retired. When it sells them they are created.

The power company can now plan its pollution costs and buy rights when it decides to build a polluting plant. If the populace later comes to dislike the pollution much more than it did when the plant was built, they will vote a pollution price so high that it is profitable for the power company to sell the rights back and shut down the plant. The investors are compensated—liquidated damages, as it were.

This also addresses the question of how much pollution is right. I think that the current pollution rights mechanisms leave this decision to the bureaucracy. I would like to be able to argue that this scheme is stable and thus will not lead to oscillations. I think it might be initially unstable but then become stable as people learn how it works.

This and other ideas are presented at the Global Ideas Bank
Some subsidiary notes.

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