Externality pricing

I'm reading "The Undercover Economist" and reflecting on his chapter regarding externality pricing. The basic point is that markets are "perfect truth disseminators," so we're better off trying to price externalities and let people themselves figure things out (driving my car into a city causes congestion, so slap on a congestion tax and let me decide what to do instead of banning driving, raising the parking costs, and so on).

I guess that's what I've done with small classes at JBU. Instead of creating rules about which classes to close and/or trying to make those decisions for people, I've said that the externality of a small class (need for more class time, more profs, more offices, etc.) mean that we should reduce their number, so if divisions have smaller classes, they have to pay a "tax" on offering small classes. How programs want to handle that problem is now up to them.

I think the idea is working, but I recognize the problem the author notes that the "rich" people who have lots of students in their courses can bypass the tax, and the student-poor programs such as Music become even poorer because they have no other options except to pay the tax. Hmm . . .