Module 3

Question 1

What is the objective of a policy instrument?

Answer 1

To alter the incentives so that the decisions made by resource users/managers result in an efficient allocation of resources.

Question 2

What are the three policy solutions

Answer 2

1. Direct public action
2. Incentive based policies
3. Information based (not important)

Question 3

Direct Public Action policy solution

Answer 3

Command and control or regulation/regulatory policy - direct public control on individual actions with legal enforcement

Question 4

Incentive based policies

Answer 4

• government incentive programs - taxes and subsidies to alter incentives facing resource users

Question 5

What are some examples of Direct Public Action policies (command and control or regulatory)

Answer 5

establish direct controls and regulations on individual actions - enforced with standard legal enforcement
- speed limits
- emissions standards
- tree harvest limits

Question 6

For regulatory policies to be effective, they must be ____?

Answer 6

monitored and enforced

Question 7

What is the downside to command and control or regulatory policies from the policymaker’s eyes?

Answer 7

Very costly, and the more strict the policy, the more incentive to cheat.

Question 8

When is public provision used, and what are some examples?

Answer 8

When the market will not provide, and social benefits are significant.
- national parks
- lighthouses
- national defence
- large utilities

Question 9

Government-imposed incentives serve to _____ the externality to address the market failure

Answer 9

internalize

Question 10

From the perspective of the decision-maker:
- Taxes can represent/internalize the _____?
- Subsidies can represent/internalize the _____?

Answer 10

• taxes internalize the external cost
• subsidies can represent/internalize the external benefits.

Question 11

What are some incentive-based policies that incentivize resource managers and/or polluters to employ cost-effective means to improve environmental quality?

Answer 11

• emission tax (carbon tax)
• Input tax (herbicides, water)

Question 12

What are the three efficient property rights?

Answer 12

• Exclusivity: All benefits and costs accrue to the property rights holder.
• Transferability: All property rights should be transferable from one owner to another in a voluntary exchange.
• Enforceability: Property rights are secure from involuntary seizure or encroachment by others.

Question 13

Economic analysis recognizes the four basic categories of property rights.

Answer 13

1. private property - owned by individuals (exclusive, transferrable, enforceable)
2. state property - owned on behalf of the citizens
3. common property - managed collectively by a particular group
4. Open access - not owned by any individual or group, lack of property rights (non-exclusive, non-transferable, non-enforceable)

Question 14

Why are more complete property rights essential?

Answer 14

Enables resource users to receive payment for external benefits or shoulder the external costs.
- Land rights
- Fishing rights

Question 15

Describe an information-based policy. Provide examples.

Answer 15

Increase the quality, quantity and availability of information to encourage natural resource managers to make different decisions. It decreases the costs of adopting environmentally beneficial management.
- Pesticide use information programs
- Energy conservation initiatives
- Resource conservation manuals
- Ag Canada research branch and conservation management

Question 16

Policy

Answer 16

A plan or guideline for action directed at moving toward and achieving some objective

Question 17

Public Policy

Answer 17

Collective actions that are pursued through formal government institutions: A law passed, a ruling made by a court, etc.

Question 18

Are policy decisions simple? Why or why not?

Answer 18

They are not simple exercises. They are loaded with conflict and political controversy.

Question 19

What are the five criteria for evaluating policy?

Answer 19

1. Efficiency or cost-effectiveness
2. Equity or fairness
3. Incentive for Innovation
4. Flexibility
5. Enforceability

Question 20

A policy is efficient if it?

Answer 20

Balances the costs and benefits. An efficient policy uses natural resources in a way that maximizes societal net benefits

Question 21

Is cost-effective the same as efficient? Why or why not? Which is better?

Answer 21

No. Efficient implies it is cost-effective, but cost-effective does not mean efficient.
- Cost-effectiveness is the next best thing after efficiency. Does not require a balance of costs and benefits.

Question 22

Describe a cost-effective policy.

Answer 22

Provides the maximum environmental improvement possible for the resources being expended or achieves a desired environmental improvement at the least possible cost.

Question 23

Equity or Fairness

Answer 23

• concerns the distribution of costs and benefits of natural resource use among subgroups of the overall population.
  Many policies either
• benefits are widely spread while costs are localized (parks, protected areas)
• or benefits are localized and costs are spread (harvested forests or mineral development)

Question 24

What are two important factors of equity and fairness

Answer 24

• Wealth: Market traded resources flow to those who are both willing to pay and able to pay
• Intergenerational equity: The distribution of benefits and costs between current and future generations (sustainable considerations)

Question 25

What is an "Incentive for Innovation"?

Answer 25

- Does the policy incentivize people to find new, innovative ways to reduce their environmental impact; does the policy stimulate technological progress?

Question 26

Why is the flexibility of a policy important?

Answer 26

To adapt to changing circumstances. 1. Changes on the demand side - Social factors and values influencing willingness to pay for goods and services (outdoor recreation, climate change) 2. Changes on the supply side influence resource availability (urban sprawl and open space, increasing scarcity of environmental goods and services).

Question 27

Is enforcement always worth it?

Answer 27

No, sometimes enforcement costs more to the policymaker than the benefits are worth.

Question 28

List the three analysis approaches

Answer 28

1. Environmental Impact Assessment (EIA) - no assessment of costs, just direct and indirect environmental impacts 2. Economic Impact Analysis - may be merged with EIA 3. Cost-Effectiveness Analysis - determine minimum cost approach to meet environmental objective (wont be efficient)

Question 29

Cost Benefit Analysis

Answer 29

CBA provides a standardized approach to evaluate projects and policies by quantifying if there are positive net benefits - a test of project efficiency - a comparison of costs and potential revenue

Question 30

What are the two key differences between a cost-benefit analysis and commercial feasibility?

Answer 30

1. CBA is a tool for helping make public decisions from a society's viewpoint rather than a single profit-making firm. 2. CBA is used for policies and projects that have inputs and outputs from environmental systems - both market and non-market inputs and outputs.

Question 31

What are the five steps of the CBA Framework?

Answer 31

1. Decide the overall perspective for the analysis - which "public" is relevant? 2. Specify the project or program under study, including the relevant time horizon. 3. Quantify the inputs and outputs of the program - physical consequences. 4. Estimate/quantify the social values of all of the see inputs and outputs - benefits and costs. 5. Compare the benefits and costs

Question 32

1. Decide the overall perspective for the analysis - which "public" is relevant?

Answer 32

the "public" will differ (Saskatoon wetland vs preservation of internationally significant wetland) - how the "public" is defined will determine mechanisms to estimate costs and benefits. - Local landowners - Local economy - Electricity consumers - Local public with environmental concerns

Question 33

2. Specify the project or program under study, including the relevant time horizon. - What are the two types of public programs relevant for CBA?

Answer 33

Specification of time, location, timing, groups involved, connections with other programs. - Physical projects: irrigation canals, beach restoration, park trails, etc. - Policy programs: regulation on activity, land-use regulations, eco-incentives, harvest quotas, etc.

Question 34

3. Quantify the inputs and outputs of the program - physical consequences. Use the Weyburn Windfarm Example

Answer 34

Some are difficult to quantify (e.g., how habitat preservation/destruction impacts what species and how many people are impacted). - All projects require prediction of the future with some degree of uncertainty. Weyburn windfarm example

Question 35

4. Estimate/quantify the social values of all of the visible inputs and outputs—benefits and costs.

Answer 35

- Assign a value to the inputs and outputs - usually monetary - Where impacts cannot be assigned monetary values, the results of the CBA must be supplemented with estimates in the discussion of the intangible impacts.

Question 36

5. Compare the benefits and costs - Net Benefits = ? - Cost Benefit Ratio = ?

Answer 36

- Net benefits = total benefits - total cost - Benefit-Cost Ratio = Total Benefits/Total costs - Cost Benefit Ratio provides the value of benefits produced per dollar of cost (BC ratio = 1.5)

Question 37

How are these compared when all the benefits and costs OVER TIME have been quantified? - Net Benefits - Benefit-cost ratio

Answer 37

Net benefits - the present value of total benefits minus the present value of total costs (NPV=PVB-PVC) - NPV>0 ; NPV<0) Benefit-cost ratio - the present value of total benefits divided by the present value of total costs - (PVB/PVC>1; PBV/PVC<1)

Question 38

What is going on with discounting criticism?

Answer 38

present generation bias - because it can diminish the value for future damages or future benefits resulting from current period policy and programs - The higher the discount rate, the more attractive projects become, with high payoffs in the short term. Lower discount rate bias programs that have high net benefits in the more distant future.