ABSTRACT
Environmental policy is based on two kinds of measures that are often portrayed as conflicting. The first involves technical regulation, while the second consists of incentives founded on economic reasoning. However, for a number of reasons it is wrong to think of these two kinds of measures as being opposed. First of all, this suggests that they are substitutes for one another, yet in concrete applications such as the Emissions Trading Program proposed by the U.S. Environmental Protection Agency (Tietenberg 1989), they in fact complement one another. Second, this view ignores the fact that, whichever instruments are used, environmental policy ultimately depends on institutions, the underlying value system, and the prevailing balance of power, and that implementing such policies involves high consensus costs. And, finally, the claim that economic theory is conceptually capable of grasping the problem of environmental pollution smacks of economic imperialism (Swedberg 1990).
