The environment provides services that are used by both household units and production units of the economy. In the processes of consumption and production, wastes are generated. If the ecological system cannot recycle these wastes as fast as they are generated, wastes accumulate. This constitutes pollution.
        Economic analysis of pollution provides a perspective on its causes and its effects, along with the costs and benefits of controlling it. Incentives to pollute stem from (1) an absence of property rights in the environment and (2) the fact that many of the environment's services are shared by all of us. Polluters, by polluting, transfer a part of their costs to others. Cost-benefit analysis is useful in determining how much pollution should be allowed. It indicates that forbidding pollution altogether is seldom in the common interest.
        There are three main avenues that government pollution control policies can take. First, certain polluting activities may be controlled directly through prohibitions or limitations on polluting activities. Second, they may be controlled indirectly by providing polluters with incentives not to pollute—say, through taxation of polluting activities. Third, in some cases, pollution may be efficiently controlled by allowing for the creation of markets for pollution rights, in which firms buy and sell government-issued licenses to pollute.