PRINCIPLES OF PRINCIPLES OF ENVIRONMENTAL ENVIRONMENTAL POLICYMAKING POLICYMAKING

David ZilbermanDavid ZilbermanJennifer AlixJennifer Alix

Department of Agricultural and Resource Department of Agricultural and Resource EconomicsEconomics

University of California, BerkeleyUniversity of California, Berkeley

Presentation OutlinePresentation Outline

Identifying the problemIdentifying the problem Toward policy interventionsToward policy interventions Constraints on policymaking and Constraints on policymaking and

implementationimplementation

Identifying the problemIdentifying the problemGlobal v. LocalGlobal v. Local

Global Environmental ProblemsGlobal Environmental Problems-require cooperation among many countries -require cooperation among many countries -resources in question are so large that -resources in question are so large that everyone must share them (eg. everyone must share them (eg. Air,transboundary rivers, ozone layer)Air,transboundary rivers, ozone layer)-resources in question are so mobile that they -resources in question are so mobile that they cross national borders (eg. Migratory birds cross national borders (eg. Migratory birds and straddling fish stocks)and straddling fish stocks)

Local Environmental ProblemsLocal Environmental Problems-can be dealt with at the local or regional -can be dealt with at the local or regional levels (eg. Pesticide contamination, industrial levels (eg. Pesticide contamination, industrial pollution, soil erosion)pollution, soil erosion)

Causes of environmental Causes of environmental problemsproblems

ExternalitiesExternalities Tragedy of the commonsTragedy of the commons Public goodsPublic goods Myopic behaviorMyopic behavior Failures of GovernanceFailures of Governance

Externalities in production Externalities in production processprocess

Definition: an activity damages the environment while not hurting the person who undertakes the activity.

Production Externalities and the Failure ofCompetitive Markets

MPC = marginal private cost (inverse of the private supply curve)MEC = marginal externality cost (suffered due to pollution)MSC = social cost (vertical sum of MPC and MEC)*Social optimum at B (where MSB=MSC)

Tragedy of the commonsTragedy of the commons

Results when groups of people are responsible for the management of a resource for which none of them holds exclusive rights.

Examples: groundwater, pesticide resistance, communal forests and fisheries

Reasons: 1) participants are unaware of the effect of their activity on the long-run quality of the resource. 2) users are in a race to capture the benefits provided by the resource.

Public goodsPublic goods

Goods that are shared and consumed by many people. Consumption of the good by one person does not limit or reduce its use by another.

Example: Biological diversity Problem: Little incentive to contribute to its

preservation.

Myopic Behavior

Short-sighted or myopic behavior Reasons:

1) lack of knowledge regarding the consequences of resource use.

2) agent discounting the future at a high rate.

-present-day survival for extremely poor.

-high-risk activities/uncertainty (uncertainty of the nature of property, civil unrest, etc)

Failures of governance

Examples of government failure:

-Poorly planned or inappropriately applied government policies

-Failure to clearly explain rules to a regulated population

-Enforce policies with preference to particular groups

Toward policy interventions

Policy objectivesPolicy objectivesPolicy outcomesPolicy outcomesPolicy ToolsPolicy Tools

Policy objectivesPolicy objectives

EfficiencyEfficiency Cost EffectivenessCost Effectiveness Distributional ObjectivesDistributional Objectives Variability ReductionVariability Reduction Environmental and Health Quality Environmental and Health Quality

ParametersParameters

EfficiencyEfficiency

Pareto efficiency: situations where one cannot improve the lot of one individual (by changing resource allocation) without hurting someone else.

Consumer and producer surplusConsumer and producer surplus

Cost EffectivenessCost Effectiveness

When political or other pressures predetermine policy objectives, policymakers may aim to minimize the cost to attain those targets (eg. Design policy to achieve improved water quality at the lowest cost)

Distributional ObjectivesDistributional Objectives

Redistribute the initial distribution of resources because equity is not considered in the efficiency concept. (Eg. It is possible to have an efficient resource allocation where 90 percent of society’s resources are controlled by 5 percent of its population).

2 ways to redistribute:1) maximize the well being of lowest-income groups. 2) aim to achieve a given level of income or well-being.

Lorenz CurvesLorenz Curves

Variability reduction

Reduction of uncertainty and fluctuation Examples: Flood control projects,

marketing boards for non-perishable agricultural goods

Environmental and health quality parameters

Specific indicators on environmental and human health conditions. 1) environmental/health indicators serve as an objective to be maximized subject to a budget constraintor2) a policymaker may take a cost-minimization approach and design policies to achieve a target level of environmental or health conditions.

Policy outcomesPolicy outcomes

Behavior ModificationBehavior Modification Resource ReallocationResource Reallocation Resource and capital AugmentationResource and capital Augmentation

Behavior modificationBehavior modification

Examples: Mandatory schooling, soil Examples: Mandatory schooling, soil conservation programs and food conservation programs and food subsidies. subsidies.

Short v. Long-run behavior modification:Short v. Long-run behavior modification:

--Short runShort run: modification consists of changes : modification consists of changes in existing production and consumption in existing production and consumption patternspatterns

--long run:long run: change may involve adoption of change may involve adoption of new practices and technologies.new practices and technologies.

Resource ReallocationResource Reallocation

Change in income distribution. (Ex. welfare policies result in a transfer of income to poor or disadvantaged groups).

Changes in land allocation and other resources (Ex. reduction in agricultural land and increase the land used for environmental services).

Resource and Capital Resource and Capital AugmentationAugmentation

Expansion of economic activities through such Expansion of economic activities through such activities as:activities as:

-tax relief during recession-tax relief during recession

-subsidy for certain economic activities -subsidy for certain economic activities

Policies often result in the expansion of:Policies often result in the expansion of:

-Physical capital (Infrastructure. Ex. dams) -Physical capital (Infrastructure. Ex. dams)

-Human capital (Transfer of knowledge and skills)-Human capital (Transfer of knowledge and skills)

-Social and natural capital (Ex. Improvement in -Social and natural capital (Ex. Improvement in environmental quality) environmental quality)