Chapter 8

An Application of Externality Theory

Global Warming


Chapter 8 concludes the coverage of externalities with an analysis of consumption-production externalities, using global warming as the example. After developing the general model, the chapter considers a number of specific topics related to global warming, including the use of taxes versus marketable permits to reduce CO2 emissions, defensive antipollution strategies, and the problem of long-lived externalities.


Command and control policies; Consumption–production externality; Defensive strategies; Global warming; Long-lived externalities; Marketable permits

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