Incentive-Based Policies for Environmental Management in Developing Countries

by Robert Anderson

Aug 1, 2002
Incentive-based instruments use financial means, directly or indirectly, to motivate polluters to reduce the health and environmental risks posed by their facilities, processes, or products. These instruments typically provide monetary and near-monetary rewards for polluting less,and impose costs of various types for polluting more. According to economic theory and modeling exercises, incentive-based instruments such as pollution charges and tradable permits are more cost-effective than traditional forms of regulation. Incentive-based approaches also can address small sources of pollution such as households that are not easily controlled with traditional forms of regulation, as well as provide a reason for polluters to improve performance relative to existing regulatory requirements. Finally, incentive-based forms of regulation can provide a stimulus for technological change and innovation in pollution control.


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