Introduction

Chapter 3 provides the rationale for government response to market failure: externalities, public goods, and open-access resources. Chapter 5 demonstrates that the optimal level of pollution abatement or environmental protection in general is where the marginal cost of abatement equals the marginal benefit of environmental damages avoided. The marginal analysis provides an efficiency criterion for guiding government intervention and regulation. This chapter investigates the policy tools at the government's disposal.

Selecting the appropriate policy tool is sometimes cast as a simple choice between directly setting effluent and emission standards for individual pollution sources and the use of effluent/emission charges or taxes. The first is known as the command-and-control approach and the second as the incentive or market-based approach. While this is an analytically useful distinction, it does not fully reveal the diversity of tools available nor the ambiguities in classifying various policy instruments. The full array of government tools includes, in addition to command-and-control and marketbased instruments, the provision of information, for example, regarding “clean” technologies when private information markets are imperfect; the use of publicity and moral suasion; the clarification or limitation of private property rights through zoning and through the establishment and enforcement of liability rules; and regulating the use of state-owned property such as national forests and military installations.