What is Pigouvian subsidies?
A pigouvian subsidy is a subsidy that is used to encourage behaviour that have positive effects on others who are not involved or society at large. Behaviors or actions that are a benefit to others who are not involved in the transaction are called positive externalities.
Examples of Pigouvian subsidies
- the government might give a subsidy to homeowners who buy solar panels for their house to reduce the amount of electricity they draw from the grid that is powered by coal.
- Public Goods – i.e. goods that have benefits for all users but whose benefits are non-excludable, meaning that if person A pays for it, it will be used by person B. National Defense, Highway Maintenance, the Police Service, education, etc are all examples.
- Research & Development – R&D leads to all sorts of new discoveries and applications over and above those that were originally paid for by the business that funded the research.
- Vaccines – the most obvious example of all, because if person A gets a vaccine then person B will benefit because he/she will not be able to get infected by person A.
CATEGORIES Economics
TAGS Dr. Bbosa Science
