Efficacy of Command-and-Control and Market-Based Environmental Regulation in Developing Countries

Abstract

Like their counterparts in industrialized countries, environmental regulators in developing countries rely principally on two types of instruments: command-and-control (CAC) policies, such as emissions and technology standards, and to a lesser extent, market- based incentives (MBIs), such as emissions fees and tradable permits. But these regulators often lack the capacity to implement, monitor and enforce CAC and MBI policies. As a result, the efficacy of those policies is an empirical matter. We review emerging experimental and quasi-experimental evidence on CAC and MBI policies in developing countries, specifically, 32 studies of CAC policies and 9 studies of MBIs. Although drawn from a small and decidedly nonrandom sample of countries and policy types, the evidence clearly indicates that CAC and MBI policies can have significant environmental benefits in developing countries. In addition to cataloging and reviewing this evidence, we discuss data and methodological challenges to augmenting it and suggest directions for future research.