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1. Introduction

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Savings from Economic Incentives


The use of economic instruments for managing the environment is gaining increasing acceptance as a useful adjunct to more traditional command and control approaches. A recent report to EPA (1997) details numerous applications of economic instruments in the United States at all levels of government and indeed throughout the developed nations and a good number of developing nations. One of the reasons for this interest is the economic savings that economic incentives can provide in achieving any given level of environmental protection. These savings are widely believed to be of importance at a time of rapidly increasing marginal cost of environmental improvement through traditional command and control mechanisms, strong pubilc interest in improving the environment and heightened concern with the international economic competitiveness of the United States.

This report attempts a systematic investigation of the savings from existing instruments as well as the potential for savings in compliance costs from more widespread use of avialable and new economic instruments.

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