Originally published in 1920, The Economics of Welfare provided a solution to the much discussed problem of externalities associated with market inefficiencies such as the problem of pollution. The concept of externalities remains central to modern day welfare economics and particularly environmental economics.

Arthur Cecil Pigou (1877–1959) succeeded his teacher Alfred Marshall in the Chair of Political Economy at the University of Cambridge in 1908. Over his long tenure in the professorship, ending in 1943, he institutionalized one of the most influential schools of thought in economics. Author of more than 30 books and 100 articles and pamphlets, The Economics of Welfare was his magnum opus.