Economic Principles of MBIs

The MBIs have been based on the economic principles such as tax, user charge, incentive, markets, compensation, and property rights. It is worth distinguishing these instruments further on the basis of the instruments that follow polluter-pays principle and other instruments. The polluter-pays principle underlines the fact that the polluter should pay for the use, damage and scarcity of natural resources. The fiscal instruments and charge instruments on the basis of their implied command for the payment for having used the resources and contributed to their pollution level may be categorized as the instruments which follow polluter-pays principle. On the other hand, other instruments work on the economic principles like incentives (financial instruments) creation of rights (redefining property rights), creation of markets (tradable emission permits, deposit-refund system and bonds), and compensation for inflecting the damage (liability).

Table: Taxonomy of MBls based on the Polluter-Pays Principle and other Instruments