The Role of Market Incentives in Environmental Policy

Sheila M. Olmstead

in The Oxford Handbook of U.S. Environmental Policy

Published in print October 2012 | ISBN: 9780199744671
Published online January 2013 | | DOI:
The Role of Market Incentives in Environmental Policy


This article surveys the framework that economics brings to environmental policy and, in particular, the use of market incentives in relation to conventional approaches to regulating environmental quality. The article is organized as follows. Section 2 defines market failure more precisely in the context of environmental problems. Section 3 considers what economic theory has to say about solutions to market failure in the environmental realm. Section 4 compares and contrasts market-based environmental policies with more traditional, prescriptive approaches. Section 5 offers a closer focus on market-based policy instruments themselves; it compares and contrasts the two most common approaches, taxes and tradable permits. Section 6 summarizes the experience with selected market-based environmental policies in practice. Conclusions and possible areas for future research are offered in Section 7.

Keywords: economics; environmental policy; environmental quality; market failure; environmental problems; taxes; tradable permits

Article.  12447 words. 

Subjects: Politics ; US Politics

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