This paper presents a framework for analyzing externalities in economies with incomplete markets and imperfect information. It identifies the pecuniary effects of these externalities, simplifying the determination of when tax interventions are Pareto improving. The approach shows that such interventions are almost always possible and that equilibria in imperfect information situations are rarely Pareto optimal. It also provides simple tests based on observable indicators of tax policy efficacy in various contexts, including adverse selection, signaling, moral hazard, incomplete contingent claims markets, and queue rationing equilibria. The paper discusses the importance of indirect effects and how they can lead to welfare consequences that were previously overlooked. It develops a methodology for analyzing the impact of externalities and calculating optimal corrective taxes in a general equilibrium context, applicable to both technological and pecuniary externalities. The paper applies this methodology to various welfare problems and concludes with a discussion of the implications for policy.This paper presents a framework for analyzing externalities in economies with incomplete markets and imperfect information. It identifies the pecuniary effects of these externalities, simplifying the determination of when tax interventions are Pareto improving. The approach shows that such interventions are almost always possible and that equilibria in imperfect information situations are rarely Pareto optimal. It also provides simple tests based on observable indicators of tax policy efficacy in various contexts, including adverse selection, signaling, moral hazard, incomplete contingent claims markets, and queue rationing equilibria. The paper discusses the importance of indirect effects and how they can lead to welfare consequences that were previously overlooked. It develops a methodology for analyzing the impact of externalities and calculating optimal corrective taxes in a general equilibrium context, applicable to both technological and pecuniary externalities. The paper applies this methodology to various welfare problems and concludes with a discussion of the implications for policy.