Tools of Environmental Policy: Market Instruments versus Command-and-control

Abstract

Pollution is an inevitable by-product of living. It is of concern where someone uses something and fails to take the costs resulting from that use into account. Normally this is due to the absence of a feedback mechanism to sheet home to producers and consumers the full costs of their decisions. Thus the operator of a steel mill emitting smoke may cause considerable harm in terms of respiratory aggravation, increased cleaning costs and so on. But in the absence of markets, the mill owner has no accurate information on the extent of that harm and certainly has no price incentive to do anything about it.