What are MBIs

In general, environmental policies try to reduce environmental degradation at the lowest possible social costs. MBIs pincipal have the same target.

A key means for achieving this goal is to somehow align private costs with social costs in such a way that externalities become part of decision making. The problem behind is, that if no intervention takes place, private sides use and pollute the environment and the society has to pay repair and abatement costs. Internalization of environmental costs is the opposite of externalization and means, that the polluters instead of the society should pay for the environmental costs caused by them. Modernized environmental policy deals mainly with this challenge. MBIs are one feature of these policies. MBIs are thusfore in first instance interventions (similar to command-and-control measures like regulations) in the market mechanism, which are necessary, because the market itself fails to internalize externalities. The charm of MBIs is the paradoxon, that, although MBIs are interventions in the market mechanism, they are at the same time using the most powerful market mechanism, which is the price. Consequently, if the price is the crucial factor, the expectation, that MBIs would lead to a more cost-effective internalizition of externalities than convential regulations, is logical.