Published Paper Details:

Air pollution in Indian cities constitutes one of the most severe forms of negative externality in contemporary environmental economics, where private decision-making systematically diverges from socially optimal outcomes. This paper examines the economic dimensions of air pollution externalities in major Indian urban centers through the analytical framework of market failure theory. Using data from twenty non-attainment cities identified under the National Clean Air Programme (NCAP), the study quantifies the social costs of particulate matter (PM?.? and PM??) using the Value of Statistical Life (VSL) and Disability-Adjusted Life Years (DALYs) approaches adapted to Indian income conditions. The analysis estimates that air pollution imposes an annual welfare loss of approximately INR7.2-8.6 lakh crore, equivalent to 3-4 percent of India's GDP. The paper further investigates how uninternalized pollution externalities distort housing, labor, and healthcare markets, resulting in reduced property values, productivity losses, and increased health expenditures. A comparative cost-effectiveness evaluation of existing regulatory instruments--command-and-control measures, pollution charges, and emission trading schemes--demonstrates that market-based instruments achieve pollution reduction at substantially lower economic cost. The study proposes an integrated policy framework combining Pigouvian taxation, cap-and-trade mechanisms, and limited Coasian bargaining solutions tailored to India's institutional context. The findings underline the urgency of internalizing environmental externalities to improve economic efficiency, public health outcomes, and long-term urban sustainability.