ABSTRACT
The subject of this chapter is environmental regulations. In this respect, it is an extension of the previous chapter. However, here we shall examine cases where the legal system is used only indirectly, and primarily to correct price distortions. This can be done by imposing a financial penalty or pollution tax, or by creating artificial market conditions that would allow pollution trading. Two approaches are used to address these issues: effluent charges and transferable emission permits. Effluent charges and transferable emission permits are alike in one important way. They represent a decentralized and, at least in theory, cost-effective approach to pollution control.
