Externalities are one of the most fundamental market failure justifications for government action, and Pigouvian taxes and subsidies are standard tools for correcting them. Even so, neither the legal nor the economic literature offers any comprehensive account of when policymakers should prefer taxes to subsidies or vice versa. This Article takes up that task. Prior efforts to distinguish between “carrots” and “sticks” have generally been limited to the context of pollution regulation, and I show here that even those efforts are incomplete. [...]


