Arthur Cecil Pigou

Arthur Cecil Pigou (18 November 1877 – 7 March 1959) was an English economist, known for his work in welfare economics and for laying the foundation of what would later be called environmental economics. He was a professor of political economy at the University of Cambridge from 1908 until his retirement in 1943. Pigou's work contributed significantly to the development of theoretical economics. He is best known for his contributions to the theory of externalities and public goods, concepts that have become fundamental in modern economics.

Early Life and Education

Arthur Cecil Pigou was born in Ryde, Isle of Wight, England. He was educated at Harrow School before going on to study at King's College, Cambridge, where he graduated in 1900. Pigou was a fellow of King's College from 1902 to 1908 and during this time, he developed an interest in economics under the influence of Alfred Marshall, a leading economist of the time.

Career

In 1908, Pigou succeeded Alfred Marshall as the Professor of Political Economy at the University of Cambridge, a position he held until his retirement in 1943. During his tenure, Pigou made significant contributions to welfare economics, particularly in the study of how economic policies could affect social welfare. His most notable work, "The Economics of Welfare" (1920), detailed how private economic activities could lead to unintended social costs or benefits, which he termed as externalities.

Pigou's analysis of externalities laid the groundwork for what is now known as the Pigouvian tax, a tax imposed on activities that generate negative externalities, such as pollution, to correct market outcomes. Conversely, he also discussed how positive externalities, such as education, could justify government subsidies.

Key Contributions

Pigou's work extended beyond the theory of externalities. He also made significant contributions to the theories of unemployment, public finance, and index numbers. However, his analysis of how government intervention could potentially improve social welfare remains his most enduring legacy.

The Economics of Welfare

In "The Economics of Welfare," Pigou explored the conditions under which the free market fails to allocate resources efficiently, leading to a divergence between private and social costs or benefits. This work not only advanced the study of welfare economics but also provided a theoretical basis for government intervention in the economy to correct market failures.

Pigouvian Tax

The Pigouvian tax is perhaps Pigou's most famous contribution to economics. This concept advocates for taxing the activities that cause negative externalities equivalent to the cost of the externalities. The aim is to internalize the external costs, leading to a more socially optimal level of production and consumption.

Legacy

Arthur Cecil Pigou's work has had a lasting impact on economics, particularly in the fields of welfare economics and environmental economics. His theories on externalities and public goods have become fundamental concepts, influencing not only economic theory but also public policy. Despite the evolution of economics since Pigou's time, his contributions continue to be relevant in addressing modern economic and environmental challenges.

Selected Works

• "Wealth and Welfare" (1912)
• "The Economics of Welfare" (1920)
• "The Theory of Unemployment" (1933)

See Also

• Welfare economics
• Environmental economics
• Public goods
• Externalities
• Pigouvian tax