Economists who promote economic instruments have sought to enrol
industry by emphasising the flexibility of economic instruments--the
fact that they give firms a choice and allow them to make their own
decisions. Economists juxtapose economic instruments against legislative
instruments which dictate how firms should behave--hence the term
applied to legislative instruments "command-and-control". Stavins
and Whitehead (1992, p. 7) characterise economic instruments as approaches
"that require less bureaucracy and governmental intrusion into business
and household decisions" whilst "market-based incentives provide freedom
of choice for businesses and consumers to determine the best way to
reduce pollution" (p. 10). Grabosky (1993) argues that market-based
instruments are more likely to be perceived to be legitimate by industry,
and therefore less likely to encounter resistance, than "command-and-control"
methods because market-based instruments accord "industry greater
decision-making autonomy in the resolution of its problems."
Schelling (1983, p. 7) maintains that "the essence of a pricing system
is that it leaves the decision to pay or not to pay to whoever confronts
the price." Although a government agency may set a pollution charge,
the decision about whether to pay it or not is a decentralised one,
that is made in the market place. This contrasts with a fine that
must be paid and is a way of enforcing legal measures. He argues that
under a charge system individual firms are the ones that make the
decisions rather than the regulator.
As public pressure has mounted to tighten up and increase regulation
this argument has been more compelling. Industry would prefer to retain
the choice of discharging wastes into the environment, even if it
has to pay for the privilege. Charges make the costs explicit and
place a ceiling on them (Repetto et. al., 1992, p. 7) whereas legislation
has the potential to impose clean-up costs of unknown magnitudes.
Additionally, environmental taxes and charges are being promoted by
economists and others as a way of replacing other charges and taxes
that firms would normally have to pay anyway (Jacobs, 1993, p. 9;
Postel, 1991, p. 31; Repetto et al, 1992)
Source: excerpt from Sharon Beder, Charging
the Earth: The Promotion of Price-Based Measures for Pollution Control,
Ecological Economics 381, 1995, pp. 51-63.
