Economics has long provided the theoretical framework for efficient pollution management. Efficiency requires equating marginal damages of pollution emissions to their marginal control costs. Recent advances in integrated assessment models (IAMs) highlight the importance of estimating and incorporating marginal damages into pollution policy design. Concurrently, this work has also advanced pollution management at the macroeconomic level. Marginal damages play a critical role in tracking total damages of pollution through national accounts. This article reviews these recent advances and discusses the status of IAMs for air and water pollution. Several exciting research challenges for future IAMs are discussed.


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