Vietnam faces a number of important environmental and resource issues including deforestation, loss of biodiversity, and water and air pollution. In developing countries the conflict between growth and protecting the environment is particularly acute. This paper provides an overview of existing agri-environmental policies and institutions in Vietnam. It then analyses policy instruments that have been employed to reduce pesticide pollution and discusses the factors affecting the magnitude of transaction costs associated with those policies. A major factor is the large number of microenterprises involved, both farms and input suppliers.