Economic Instruments for Water Pollution Management: A Case Study

Although legal standards are in place for socially acceptable ambient concentration level of a pollutant, a firm has an incentive to shirk on pollution control as huge costs are at stake Profit being the objective of firm, which comes from a market price which does not reflect society`s preferences for environmental protection. Therefore, producer has no incentive to supply the socially optimal level of pollution control. Hence, it is imperative on the part of economists to provide an incentive based alternative to inflexible CAC regulations. Present study attempts to design pollutant specific tax rates to advocate the use of economic instrument for water pollution management.