Policies to correct externalities

A pollution tax is a charge on each unit of pollution a firm emits, so the firm cuts emissions wherever cutting costs less than the tax.

A subsidy is a payment from the government, to a firm or to a buyer, for each unit of a good whose use benefits third parties.

State provision is the government supplying a good itself, paid for from taxes, so that everyone contributes and nobody can free ride.

Information provision is the government publishing, or requiring sellers to publish, information buyers lack, so they judge a good's true benefit or harm.

Tradable permits cap the total pollution allowed and let firms buy and sell the right to emit within that cap.