Market-based approaches to protecting the environment based on buying and selling "pollution rights" have long been special favorites of the academic community. According to a growing body of literature, a much wider use of this approach could solve the problems of ineffectiveness, inefficiency, and rigidity that characterize our current system of environmental protection.¹

In this literature, "environmental protection" largely means setting and enforcing a limit on discharges of clearly defined "pollutants" into the air and water. This literature often assumes that a set number of major sources is responsible for these discharges, and that equal amounts of discharges from any of these sources have roughly the same environmental effect.