ABSTRACT
Economic instruments such as taxes and charges are supposed to make external costs part of the polluter's decision. Laws can also force the polluter to take notice of these external costs by prescribing limits to what can be discharged or emitted. Economists argue, however, that the market is better able to find the optimal level of damage: the level that is most economically efficient. The idea that there should be a level of pollution that is above zero but is called ‘optimal’ is strange, and even repugnant, to many people – but it is a central assumption in the economic theory on which economic instruments are based.
