ABSTRACT
This chapter outlines the theory of optimal deterrence in the context of environmental policy. Environmental policy is much the same: there is broad agreement that environmental losses are a problem, but whether it is best to push decision makers with command-and-control policies, pull them with incentives, or prod them with the sticks of litigation and punishment is another issue. Some feel that if left alone, the market will attain efficiency on its own. The dissemination of information about environmental issues can help individuals and firms make more appropriate decisions regarding the environment. As an alternative to traditional command-and-control approaches, policymakers use incentive-based policy instruments to pursue the same efficiency goals from a different angle. Even effective policies enforcing emissions targets are only as good as the choice of those targets. The Environmental Protection Agency and similar agencies in other countries face the contentious task of selecting the standards.
