technologies that firms must use. Although such regulations have helped to protect the environment, they have

three shortcomings: they provide no incentive for going beyond the limits they set; they offer limited flexibility

on where and how to reduce pollution; and they often have politically-motivated loopholes.

12.3 Market-Oriented Environmental Tools

Examples of market-oriented environmental policies, also called cap and trade programs, include pollution

charges, marketable permits, and better-defined property rights. Market-oriented environmental policies
298 12 • Self-Check Questions

include taxes, markets, and property rights so that those who impose negative externalities must face the

social cost.

12.4 The Benefits and Costs of U.S. Environmental Laws

We can make a strong case, taken as a whole, that the benefits of U.S. environmental regulation have

outweighed the costs. As the extent of environment regulation increases, additional expenditures on
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