We use a theoretical model and empirically'calibrated simulations of the automobile market
to show how the traditional logic of Pigouvian taxation changes when consumers are …

We show how the traditional logic of Pigouvian externality taxes changes if consumers
under-value energy costs when buying energy-using durables such as cars and air …

ABSTRACT A basic tenet of economics posits that when consumers or firms don't face the
true social cost of their actions, market outcomes are inefficient. In the case of negative …

We analyze optimal policy when consumers of energy-using durables undervalue energy
costs relative to their private optima. First, there is an Internality Dividend from Externality …

A growing literature has shown that behavioral biases influence consumer choices. Such so-
called internalities are ubiquitous in many settings, including energy efficiency investments …

Pigouvian taxes can fully correct for market failures due to externalities, but actual policies
are commonly forced to deviate from the Pigouvian ideal due to administrative or political …

The behavioral responses to taxes and subsidies are often subject to various behavioral
biases and transaction costs—what we define as “microfrictions.” We develop a theoretical …

A corrective tax or subsidy is “well-targeted” if it primarily affects choices that are more
distorted by market failures. Energy efficiency subsidies are designed to correct multiple …

When consumers exhibit present bias, the standard solution to market failures caused by
externalities—Pigouvian pricing—is suboptimal. I investigate policies aimed at externalities …

Argument 1: Internalities do not exist. Such an argument is difficult to square with a large and
growing body of research showing that consumers can be present-biased, overoptimistic …