Abstract and Executive Summary
Pollution problems in developing countries are of growing concern, particularly air and water pollution in rapidly growing urban areas. In large part this problem is attributable to the classic problem of externalities in production and consumption, and can be expected to grow worse with the success of industrial development policies. In addition there is inadequate public good infra-structure for treating and disposing of waste products. This lack is due in part to inadequate 3evels of tax revenue in developing countries.
"Externality" describes the fact that the costs of pollution and other forms of environmental degradation are not taken into consideration by the decision-makers undertaking activities which cause these problems. A rationale exists for government policies to correct this market failure and achieve a more efficient allocation of resources. These policies include command and control type policies which restrict the quantities of harmful activities and market-based incentive policies which raise the price of these activities to the perpetrators. The former include emission and abatement standards while the latter include emissions charges, taxes on production and consumption, and marketable pollution quotas.
