1 Flexible instruments for the regulation of toxic substances: A case study for arsenic in Chile R. O’Ryan Program for Environmental Economics and Management and Center for Applied Economics Department of Industrial Engineering, Universidad de Chile M. Díaz Program for Environmental Economics and Management Department of Industrial Engineering, Universidad de Chile ABSTRACT: Flexible instruments are preferred over command and control to regulate environmental problems since they allow sources to reduce the costs of compliance. Usually, flexibility is synonym to market based incentives (MBI’s): tradeable permits or emission fees. However, when regulating many different facilities that emit a toxic substance, each impacting different localities, flexibility - and consequently cost reductions- can be obtained through emission standards. Additionally if risks are imposed through other media, risk management can be an interesting policy instrument. In this context, where MBI’s are not applicable, these instruments can be more cost effective than an ambient standard or technology imposition. Just how much is gained through increased flexibility depends on the specific conditions of the problem. Chile has serious problems with arsenic concentrations associated to emissions from its seven copper smelters, located in different parts of the country. In one locality - where one of the most polluting facilities is located- arsenic intake from water is an important health hazard. To regulate airborne emissions, an ambient concentration standard, applicable to the whole country, is being proposed. However, the costs of inefficient regulation, resulting from inflexible policies or not considering risk management among media, can be very high. In this context, this paper evaluates the risks and costs of four alternative policy instruments -uniform quality standard, flexible emission standard, uniform emission standard and risk management- to determine (i) the costs of compliance under each policy; and (ii) propose a cost-effective policy for regulating arsenic in Chile. The results are based on information generated by a three year project that included the participation of the affected facilities. Very significant differences among each policy instrument are obtained, consequently the results of this research will allow regulators to incorporate key information for the development of an arsenic regulation appropriate for Chile.