In point of fact, externalities are often treated as an irritant, an unwelcome relative, because they necessarily lead to awkward, embarrassing quali¥cations and exceptions to the major elegant results of the core features and conclusions of economics as a discipline. On the surface, therefore, the notion of externalities may not seem to hold the same importance as more central areas of economics, such as consumption, production, distribution, and macroeconomics. We disagree wholeheartedly.