Economists have long advocated pollution taxes as a policy to improve water quality. One of the reasons water effluent taxes are embraced by economists interested in market-based policies is that sources of water pollution are varied and difficult to assess individually in terms of control costs. In principle, taxes overcome this problem. With a price—the tax—applied to pollution emissions, firms compare the price to their costs of emissions control. If the price is higher than control costs, they reduce emissions rather than pay the tax. Accordingly, with a price mechanism, high-control-cost firms abate .
