Why and how pigovian taxes work - simple explanation
Imagine a small village with a lake. Nobody owns the lake - it is there for everyone to enjoy (they could privatize it, but that’s another story). Anyone can swim in it and catch fish.

Meet John, he is an avid fisherman. He would like to catch fish every day.

Everytime he catches a fish he gains a fish and the community looses a fish.

But there is a problem - John’s overfishing is causing the number of fish to go down (John is claiming that it is not true and claims that the fish are just hiding, but that is really not important now).

What will happen in the future? Here are a few options:

1) John will continue fishing. One day the fish are nowhere to be found. Everyone loses.

2) The village people ban fishing. John is very unhappy. He can’t even catch a reasonable amount of fish that wouldn’t harm the fish population (some people even claim that there are too many fish in the lake and that they are biting them while they are swimming).

3) The village people tax fishermen for every fish they catch. John is moderately happy because he can still catch fish and the community is also happy - the fish stocks are stable. Villagers can lower their taxes because of John’s contributions and spend the extra money any way they like.

The tax in the third option can also be called Pigovian tax. It is what this Club is all about - taxing the activities that harm other people.