Rapid urbanization and increased industrialization have led to
high pollution levels throughout Latin America. Economists tout
policies based on market-based economic incentives as the most
cost-effective methods for addressing a wide variety of
environmental problems. This chapter examines market-based
incentives and their applicability to Latin America. We first
review the market-based incentives traditionally used to address
pollution – emissions taxes, environmental subsidies, tax and
subsidy combinations, tradable pollution permits, and hybrid
instruments – and compare these instruments to command-and-
control policies. We then discuss two sets of factors that
affect how feasible and efficient pollution control policy will
be in Latin America. We focus on practical considerations such
as monitoring and enforcement, distributional issues, political
feasibility, institutional considerations, administrative costs,
and compliance costs. We also examine what the violation of
standard modeling assumptions impli