Page "Pigovian tax" Paragraph 5

The divergence between the marginal private interest and the marginal social interest produces two primary results.

First, as already noted, the party receiving the social benefit does not pay for it, and the one creating the social harm does not pay for it.

Second, when the marginal social cost exceeds the private marginal benefit, the cost-creator over-produces the product.

Ultimately, because non-pecuniary externalities overestimate the social value, they are over-produced.