A key issue in regulating a polluting industrial plant is whether to employ price or quantity
rules in controlling pollution levels, e.g., imposing a tax or charge on pollution or stipulating a
quantitative (performance) standard for required emissions reductions. The former is referred
to as a market-based solution while the latter signifies a command-and-control (CAC)
approach.2
Economists generally argue that the market-based approach is more efficient than
CAC. Two broad sources of inefficiency of the CAC approach are frequently quoted: