Prices Versus Quantities Revisited: What Do Policymakers Need to Know to Set Pigouvian Taxes and Subsidies?

What information do policymakers need to design Pigouvian taxes or subsidies? Standard logic suggests that it is sufficient to know the size of the externality and unnecessary to know about quantities. Yet this logic is incorrect if interventions have fixed costs, taxes create deadweight losses, or there are distributional concerns. We present a model in which these considerations can make it more valuable for policymakers to learn about equilibrium quantities. We apply the model to congestion pricing, which has high fixed costs, and to a proposed housing subsidy in Boston that features dead weight losses and distributional concerns.