Economic instruments in environmental policy

Abstract

Due to market failures often is necessity for government to regulate environmental pollution by employing command-and-control regulations and/or economic instruments. Despite its cost inefficiency and inflexibility command-and-control policies are still dominant regulation approach to pollution control. Most important factors that are lying behind this inconsistency are lack of understanding of how economic instruments work to protect the environment, and the major influence of rent-seeking and interest group politics on the design of actual environmental policy. Opportunities for much greater environmental and economic benefits are, therefore, lost.