Two essays on the economic role of government

Perhaps the most important flaw in much of the externality literature is that the analysis is done in a partial equilibrium framework, and hence does not capture the sectoral interactions, or the feedback upon different factors, that can be studied in a general equilibrium framework. Further, Pigouvian taxes and subsidies must be viewed within the context of a revenue system with many other tax instruments. In the first essay, I analyze these issues using a computational general equilibrium model. The polluting industries in the model emit pollution which harms both other industries and consumers.

An increase in a Pigouvian tax results in a much lower Marginal Welfare Cost than do similar increases in labor income taxes, output taxes, and sales taxes. Simulations comparing the effects of Pigouvian taxes and subsidies show that a Pigouvian tax generates a larger welfare improvement per unit of pollution reduction than does a Pigouvian subsidy with labor income tax replacement, while the opposite result holds when a lump-sum replacement tax is used. These results hinge on the second-best effects operative within the model due to existing tax distortions in the economy.

The second essay uses the technique of deconstruction to examine five of the seminal works in the legal-economic literature dealing with the takings clause of the Fifth Amendment to the United States Constitution. The view taken here is that law is a language, or rhetoric, and that the authors examined here are persuading an audience toward a particular result. As such, their results are seen as derivative of several phenomena, including theories of property and government, metaphors, fictions, conceptions of fairness and efficiency, ideology, and appeals to authority.

The deconstructive approach brings these phenomena into the foreground and examines their implications for takings cases. The rule advocated by each author is shown to be selectively chosen, reflecting that author's view of the world, with no more a priori claim to correctness than any other rule. Further, these rules are shown to be either internally consistent or not universally applicable, so that the claims of comprehensiveness and universality made by the authors are in doubt.