Summary: The authors call for a revised model for the regulation of industrial pollution. They think the traditional emphasis on appropriate instruments, while ultimately correct, is premature, because agencies in most developing countries have insufficient information and burdensome transaction costs to implement any instruments comprehensively. Once regulators have better information, more integrated information systems, more capacity for setting priorities, and a stronger public mandate, it will not be difficult for them to manage pollution more cost-effectively. Overhasty production of market-based instruments will not work and will probably discredit those regulatory tools. Rather, the new model of regulation should relegate regulators to their proper place in the scheme of things. The state should play a role in regulating pollution externalities, but should also recognize the role of the community and the market. In the authors' view, appropriate regulation in developing countries should incorporate five key features, namely, it should foster a climate of information intensity, encourage community environmental education, allow variations in regulations in different communities, initiate pilot projects and build larger programs later, and fashion adaptive regulatory instruments that both counter environmental degradation and minimize disruption for investors.
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