Arthur Cecil Pigou

Arthur Cecil Pigou (1877–1959) was an English economist at the University of Cambridge who helped establish welfare economics and analyzed how externalities distort social welfare.

Welfare economics: The study of how economic arrangements affect social welfare and how policy might improve it. Pigou helped establish this field by analyzing how economic activity affects collective welfare.
Pigouvian tax: A tax set to reflect the external cost of an activity, bringing private incentives closer to social costs. Pigou proposed corrective taxation as a way to address harmful externalities.
Alfred Marshall: An English economist whose work shaped neoclassical economics and the Cambridge tradition. Marshall taught Pigou and influenced the analytical framework he developed.
Carbon tax: A tax on carbon dioxide emissions or the carbon content of fuels. It applies Pigouvian reasoning to the climate damage caused by greenhouse-gas emissions.
Coasean bargaining: Negotiation among affected parties to address an externality by changing behavior or arranging compensation. It contrasts Pigouvian taxes with private negotiation as a possible remedy.
Externality: A cost or benefit imposed on someone outside a transaction and not reflected in its price. Pigou’s analysis centers on these spillovers between private decisions and social outcomes.
Pigouvian subsidy: A subsidy intended to encourage activities whose benefits spill over to others. The same corrective logic can support activities that generate external benefits.
John Maynard Keynes: A British economist whose theories transformed macroeconomics and economic policy. Keynes succeeded Pigou as Cambridge’s professor of political economy and challenged parts of his outlook.
Congestion pricing: A charge on road use designed to reduce traffic and account for congestion costs. Road users impose delays on others, a spillover suited to Pigouvian analysis.
Kaldor–Hicks efficiency: A change is efficient under this criterion if winners could compensate losers and still remain better off. This criterion offers a different standard for judging welfare-improving changes.

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