Is It Possible for Pigou Tax and Coase Scheme Working Together? A New Externality Elimination Framework from Relation and Network Perspective

School of Business, Shandong University, 180 Wenhua Xilu, Huancui District, Weihai 264209, China

^* Corresponding author: jiangyanjie_sdu@163.com

Abstract

The extensive use of traditional fossil energy will produce huge environmental or health negative externalities. When it refers to the case of Private Passenger Vehicle (PPV), it exhausts a large amount of air pollutants, which will cause serious health damage to people. Based on the relation and network perspective, examining the traditional externality elimination mechanism-Pigou Tax and Coase scheme, can better summarize their advantages and disadvantages, and propose a new externality elimination framework accordingly. The research poses a new externality elimination framework that combines the advantages of them. It can not only realize the compensation for the health damaged under the Pigou tax, but also make full use of the market disclosure advantage of the Coase scheme for infringement preferences. The research first explains the framework of externality elimination based on relation and network perspective, and reveals that the essence of externality elimination is to change the asymmetric relation of interests into a symmetrical one. Then the study explains the property rights and pollution rights in the Coase scheme also based on relation and network perspective, and believes that property rights are to ensure no externality. Finally, using the social welfare maximization model, the Coase scheme pollution authority amount is included in the indirect utility objective function of a gasoline or new energy vehicle throughout its life cycle, and then the overall social welfare expected to purchase a car is investigated, in order to obtain the substitution relationship between the amount of authority and the amount of compensation, which plays a key role of the new externality elimination framework.