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Abstract

Should developing countries eschew conventional command and control regulatory instruments that are increasingly seen as inefficient and rely instead on 'alternative' instruments based on economic incentives and community pressure? This paper addresses this question as it pertains to fixed point air pollution. The paper discusses the theoretical advantages and disadvantages of alternative instruments, reviews both industrialized country and developing country experiences with them, and proposes a number of policy guidelines. We argue that regulators in developing countries typically operate under severe financial and institutional constraints. Given these constraints, pure economic incentive instruments are generally not practical since they involve relatively high administrative and political costs. Suitably modified however, emissions fee policies probably are appropriate. Such policies can provide a foundation for a transition to an effective high-fee system, and can raise much need revenue for environmental projects and programs. In addition, 'indirect' instruments like taxes on dirty inputs may be a second-best approach to pollution abatement. Finally, a variety of relatively low-cost policies are available to strengthen pressures placed on polluters by private-sector agents. At very least, these policies can complement formal regulation.

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