Marketbased approaches are often more effective than command-and-control from "summary" of Economics of the Environment by Robert N. Stavins
Market-based approaches are often more effective than command-and-control regulations in achieving environmental goals. This is because market mechanisms, such as emissions trading systems or pollution taxes, provide economic incentives for firms to reduce their pollution levels. When firms are faced with the prospect of having to pay for their pollution, they have a strong incentive to find cost-effective ways to reduce their emissions. This can lead to innovation and the development of new, cleaner technologies. In contrast, command-and-control regulations set specific pollution limits for each firm without taking into account the costs of compliance. This can lead to inefficiencies, as firms may not have the flexibility to find the most cost-effective ways to reduce their pollution. Additionally, command-and-control regulations can be difficult and costly to enforce, as regulators must monitor each firm's compliance with the rules. Market-based approaches also have the advantage of allowing firms to trade pollution permits or pay pollution taxes, which can lead to lower overall compliance costs. This flexibility allows firms to take advantage of differences in their abatement costs, leading to a more efficient allocation of resources. In contrast, command-and-control regulations do not allow for such flexibility and may result in higher compliance costs for some firms. Furthermore, market-based approaches can provide incentives for firms to go beyond compliance and reduce their emissions even further. For example, firms that are able to reduce their pollution levels below their allocated permits can sell their excess permits to other firms. This creates a financial incentive for firms to invest in cleaner technologies and practices.- Market-based approaches offer a more efficient and flexible way to achieve environmental goals compared to command-and-control regulations. By harnessing the power of economic incentives, market-based approaches can encourage innovation, reduce compliance costs, and promote further environmental improvements.
