Regulatory Approaches

Markets coordinate the exchange of goods and services between producers and consumers. Under an ideal market arrangement, resources are efficiently allocated in such a way that no person can be made better off without making another person worse off. Among other conditions, this requires that all costs and benefits are accounted for by the participants of the transaction so that the true value of goods is reflected. When these conditions are not met, costs and benefits are passed on to third parties, and inefficiencies result. Environmental pollution can be thought of as the product of inefficient markets, where the burden of environmental protection is passed on to third parties and the true value of goods and services is not reflected in their market exchange. These ...