Market‐Based Environmental Policies: What Can We Learn from U.S. Experience (and Related Research)?

Abstract

Abstract This essay traces the history of market mechanisms and describes their theoretical advantages over prescriptive regulation. It gives an overview of the lessons learned about market instruments thus far, among them that there is an ongoing need for both flexibility and simplicity and for more effective monitoring and enforcement. It argues that there remain important limitations to the success of market instruments, including that firms are not yet well equipped to fully utilize them. The chapter concludes with predictions about the conditions under which such instruments are most likely to succeed.