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The problem posed by externalities is that the resource allocation generated by markets will not be efficient because market prices do not reflect the ‘full’ or social costs involved, and accordingly swill not yield socially efficient levels of consumption and production. (Dollery B and Wallis J, 2001)
Pollution and climate change is a harsh reality, which is being faced by people around the world. On one hand there is no shortage of campaigns promoted ill effects of pollution on our environment, on the other, the economic activity which results is pollution sees no sigh of abating. “Pollution externalities are the essence of the market failure reasons for government intervention to influence decisions affecting climate change, and then onto the choice of policy interventions and the relative pros and cons of different intervention options...
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