Traffic congestion and road tolls are familiar economic concepts for most undergraduates; however, students often have difficulty explaining exactly how theoretical principles like externalities and social welfare are related to their real-world experiences, such as driving. The authors present a classroom exercise to demonstrate how congestion…

The concept of negative externality is central to the teaching of environmental economics, but corrective taxes are almost always regressive. How exactly might governments return externality-correcting tax revenue to overcome regressivity and not alter marginal incentives? In addition, there is a desire to achieve a double dividend in the use of…