Market-based pollution mechanisms are not as simple as the one shown in this section. Each must be judged on its own merits. Simply because a mechanism has some market-like elements, is not evidence of efficiency or appropriateness.

There are a number of important issues related to marketable pollution credits. For example, how long should the "life" of a credit be? One month, a year, forever? Should pollution credits be sold outside of airsheds? Should firms know in advance if they are being monitored for initial credit determination; and if so, will this induce them to overpollute to "earn" more credits?

Tradable pollution credits is an interesting use of market incentives to correct a market failure. Put another way, it is a way in which a government can create a needed market where one didn't exist, but such markets must be created with consideration for the impact of the new incentives which result.

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