Summary of Environmental Policy

Environmental pollution is considered as 'public bad' that arises mostly due to the problem of externalities and the lack of property rights. As the polluter does not take into account the social cost due to pollution in his decision-making, there is more than optimal supply of polluting goods. Earlier public policy to control pollution was in the form of command and control measures. In recent years, however, policy instruments in the form of taxes, charges and tradable permits, which are based on market incentives and polluter-pays principles, have been quite popular, particularly in developed countries. These instruments are considered to be better than government regulations as the compliance cost is lower and it provides scope for innovation.

Although market-based instruments have made inroads into developing countries, they are not used extensively. The level of economic development, nature of technology used, and priority assigned to growth over environment, is some of the factors responsible for the slow pace of MBIs. In such circumstances informal regulations - by judiciary, corporate firms, and community groups -have been quite popular in developing countries.