12. Incentive-based regulation - theory Flashcards
1
Q
Why do economists argue for incentive-based (IB) regulation?
A
Because it can both lower the short-run costs of pollution control and provide better incentives for long run technological improvements than the current cap and control approach.
2
Q
What are two types of IB regulation?
A
1) pollution taxes
2) cap and trade system
3
Q
What is the cost-effectiveness rule?
A
Which says cost effectiveness is only achieved if and only if, the marginal cost cost of reduction is equal for each pollution source.
