Incentives and Regulation for Pollution Abatement with an Application to Waste Water Treatment

Abstract

This paper first compares alternative regulation and fiscal-financial incentive based policy instruments for pollution control in terms of different choice criteria. Since no single instrument can be shown to dominate all others in either theory or actual experience, the paper goes on to spell out an experimental menu of alternative incentive structures for supporting predetermined standards. The practical implications of the proposed alternative systems of charges, taxes, and tradeable permits in terms of their financial burdens on product prices are then illustrated for waste water treatment using abatement cost functions estimated for the pulp and paper industry in India.