Policy Instruments and Financial System

This chapter introduces negative externalities, i.e., costs incurred by a third party without the polluter having to pay compensation, and exemplifies them by external costs of transport in Switzerland. Next, the chapter compares various policy instruments the state can use to address market failures in dealing with externalities. Finally, the role of the financial system is discussed, which can counteract the current market failure in connection with externalities via sustainable measures in the area of investment and lending.