The Classification of Externality and the Evolvement of Externality Theory

There are two typical kinds of definition of externality based on the difference between subjects pro- ducing and receiving external effects. Externality can be classified from seven angles according to the forms of its expression. The development of externality theory has undergone three phases: Alfred Marshal's Exterior Economy, A. C. Pigou's Pigou Tax and R. Coase's Coase Therem. These three phases are known as three milestones in the development of eternality theory. Steven N. S. Cheung and Yang hold that the concept of ex- ternality is insignificant. New Classical Economics, which might have more elucidative power than externality theory, cannot necessarily deny externality theroy.