ABSTRACT
When individuals or firms make decisions about production, consumption and investment, they generally consider only their own costs and benefits, not the environmental or social consequences (externalities). Consideration of the pollution they create does not enter into their decisions. It is laws which force the polluter to take notice of these external costs by prescribing limits to what can be discharged or emitted. Economic instruments are intended to make these external costs part of the polluter's decision by adding a charge or in some way providing a monetary incentive for considering the environmental and social costs.
