ABSTRACT
Continued growth of cities, increases in vehicle-miles traveled, and Americans’ renewed love for large vehicles contribute to increasing externalities from vehicle emissions, including worsened health, diminished visibility, and possible global warming. Technological advances in the measurement of car emissions renew hope that a tax can be levied directly on these emissions. Technically, people could say that each household recognizes only its own contribution to aggregate emissions, but that effect becomes nil as n becomes large. The key distinction is that only the social planner recognizes how the individual’s decision is multiplied by n to determine aggregate emissions. Individuals may get positive utility from using the latest technologies, or negative utility from inconvenience or decreased performance. To avoid redistributions in the tax rate problem, as in the homogeneous consumer model, the authors assume that each individual’s tax revenues are returned in a lump sum to the same individual.
