ABSTRACT
Economists interested in environmental, safety, and health regulation have long argued that decentralized, incentive-based policies are more efficient than centralized, command-and-control (CAC) approaches. While the former is certainly the more common, there are certain programs that make some use of economic incentives to attain the specified environmental standards. Various adjustments must be made to calculate a comparable net benefit estimate for the CAC regime. The achievement of some selected standards for environmental quality either through a command-and-control approach or through a general incentive-based approach represents alternatives with precedent in the policy arena. In a setting of uncertainty regarding the true benefit and cost functions, a mistake in setting the environmental standard is likely to result in a more costly error when the marginal cost curve is steep relative to the marginal benefit curve in the relevant region. The chapter describes the estimation of the costs and benefits of our hypothesized air pollution controls in Baltimore.
