Explaining the Yeh Paradox: A Comment [The Maximum Revenue Tariff vs. Transfer Payments]

This paper examines the controversy between the traditional Pigovia n analysis of social cost and the more recent property-rights approach. It is demonstrated that, while the Pigovian approach assigns no a priori rights or liabilities, the imposition of a Pigovian tax results in the assignment of property rights. It is concluded that all proposed solutions to externalities imply the assignment of property rights, and that the only general prescription available to handle all external effects is cost minimization.