Abstract: A method is provided for compensating for the effect of flare due to stray radiation in use of a projection system of lithographic apparatus to project a radiation beam patterned by a patterning device to produce a pattern image in an image plane. The method comprising establishing a power spectral density (PSD) indicative of the spatial frequency of the stray radiation produced by the projection system, and determining, from the PSD, a modulation transfer function (MTF) relating the PSD to the pattern applied by the patterning device in such a way that the effect of flare on the pattern image is taken into account. The MTF is then used to determine the effect of flare on a critical dimension (CD) of the pattern image, and a relationship is established between any change in the CD of the pattern image and a change in the CD of the pattern. The patterning device may then be designed in such a way as to at least partially offset the effect of flare on the CD of the pattern image.