What are market-based policies designed to do?

Market-based policies are tools used by governments to influence economic behavior by leveraging financial incentives or disincentives. They aim to align individual decisions with broader economic goals, such as promoting sustainability, improving public welfare, or reducing negative externalities.

For example, a carbon tax is a market-based policy that imposes a cost on carbon emissions, encouraging businesses to reduce their greenhouse gas output. This financial disincentive aims to lead firms and individuals to shift towards cleaner energy sources or technologies. Conversely, subsidies are incentives that can encourage desirable behaviors, like investing in renewable energy or training programs for workers.

While stimulating competition among firms is a beneficial outcome often associated with market-based policies, the primary focus is on influencing behavior via financial mechanisms rather than directly affecting competition itself. Therefore, "influence behavior using financial incentives or disincentives" is the most accurate description of the purpose of market-based policies.