Topic 3: Policy Flashcards
Policy
Gov’s laws, regulations, financial programs and their interpretation, administration and supporting structures
Economic justification of regulation
Prevent -ve externalities (-ve impacts on other people who don’t get a direct say in whether the land gets cleared; threatened species, soil erosion filling up dams; salinity)
Economic mechanism for regulation
Change incentives faved by violators
Penalise them for violation
E(penalty for violation)= penalty if caught x probability of being caught
E(penalty for violation) must be high enough to outweigh benefits from violating
Limitations of regulation
Regulation tends to be default policy for some types of environmental issues
Can be inflexible
Can generate big costs
Economists have developed no. of alternative approaches
Economic justification for modifying property rights
Open access problem: anybody who wants to can participate; nobody has exclusive rights
If all agreed to reduce fishing -> all better off (but not incentive to do so)
Each individual has incentive to break agreement
Economic mechanism for modifying property rights
Create exclusive property rights (permits)
Penalise people who fish without required permits
E(penalty for violation) = penalty if caught x probability of bring caught
E(penalty for violation) needs go be high enough to outweigh the benefits from over-fishing
Direct actions by gov example
Threatened species recovery
Economic justification of direct action by gov
Community places high value on preserving threatened species
In some cases, populating islands or fenced reserves or captive breeding are efficient ways of preserving them
Benefits of preserving them are judged to outweigh costs
If left to private individuals, probably won’t happen
Economic mechanism for direct action by gov
General tax revenue
Pay salaries and operating costs
Information provision
Education, training, raising awareness, coordination, building social capital
Economic justification for information provision
Public benefits from voluntary action (+ve externalities)
Promoting +ve externalities
Economic mechanism for information provision
Info, awareness raising, etc. to convince people to take voluntary action
Convince people that there are benefits available to them they didn’t know about or under-estimated
Reduce costs or risks through cooperation between people
Relatively cheap policy option, but works best if recommended change in behaviour is beneficial to individual
Economic justification for payments/subsidies
Reduce -ve externalities
Benefits go to whole community
Would not happen without some sort of policy intervention
In certain situations, benefits are large enough to outweigh cost of paying farmers
Economic mechanism for payments/subsidies
Farmers bear costs from changing their practices
Not willing to change without support
Payments change economics of different farming options
Make environmentally beneficial ones economics attractive to farmers
Info provision alone would not work as new options are unattractive
Reverse auction
Lots of people with similar items to sell, bid to sell it to purchaser
Lowest bid wins
Economic justification for reverse auctions
Creates +ve externalities (external benefits) to others in community
These would not happen without some sort of policy intervention
Their benefits outweigh the tender payments in some cases
Auction process selects those bids that provide best value for money (greatest environmental benefits for money)
Economic mechanism for reverse auction
Farmers bear costs from changing their practices
Not willing to change without support
Payments change the economics of different farming options
They make the environmentally beneficial ones economically attractive to farmers
Economic justification for markets
Emissions considered acceptable up to certain level
Most valuable economic activity that generates emissions continues; emission cuts that get made are the least costly ones
How is the price of permits set?
Balance between:
The supply and demand of permits
Development offsets
Economic developers may wish to take actions that would damage environment
Under regulatory approach, actions would be banned
Under offsets approach, can take actions provided they generate other environmental benefits to compensate
Economic justification for developmental offsets
Sometimes regulatory approach rules out actions that greatly benefit the community
Offsets allow them to proceed without damaging environment
Some policies create market where developers buy offsets from landholders
Challenges of development offsets
Controversial:
Do the offsets actually work?
Do they outweigh environmental losses?
Would the offset actions have happened anyway?
Economic justification of research and development
Research generates info which is itself a public good - may not be able to charge people to access the info -> will be under supplied
In case of environmental research, the info relates to public goods and externalities
May be no suitable technology to solve the problem
Economic mechanism for research and development
Direct funding of research by governments
Research and Development Tax Concession for business who invest in R and D
Indirect impacts of policy
For many types of policies, intent is to influence behaviour of people or management decisions of businesses
People or businesses affecting environment, not gov
Weaknesses in env. policies
Performance of env. policies is very mixed
Poor prioritisation of which projects to invest in
Poor choice of policy mechanisms
Failure to consider likely extent of behaviour change -> excessive optimism about people’s responsiveness
Committing projects without properly considering their feasibility
Failure to learn from mistakes
Inability to resist vested interests