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Decision Support Tool
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Step 1: Understanding the policy context

This section outlines the main questions that need to be asked in order to understand the context within which an MBI is sought. Information gathered at this step will feed into all subsequent steps. Identifying the policy context takes into consideration the nature of the natural resource problem, potential solutions, stakeholders and institutional setting.

Defining the biophysical problem: how are environmental assets threatened?

Before any intervention can be considered, an understanding of the NRM problem needs to be developed.  Policy goals need to be explicit and ideally, outcome-based (such as specifying the specific change in natural resource use being sought).

This step involves asking questions such as:

  • What are the biophysical resources being threatened and where are they located?
  • Can you set measurable targets? Can you measure movement towards the target (can you measure the improvement that an action will have on the goal)?
  • Is the problem long term or short term and is it approaching a critical threshold beyond which change cannot reverse the problem?

Understanding the management context of the threat

Confronted with the complexity of conservation goals, and often multiple threats from geographically and economically diverse sources, as well as a diverse mix of current policy instruments, this is a major and ongoing challenge for NRM managers. The key factor here is integrating scientific and other advice to match key threats with known management solutions. This provides the starting point for identifying policy instruments that can promote the desired management solutions.

Pertinent questions here include:

  • What is the nature of the threat? Is it broadly across the catchment or is it localised?
  • Could a management change(s) address the threat?
  • Does everyone need to make the same changes to get the result or can this vary?
  • Does it matter where in the landscape management changes occur, or will they require tailoring to different circumstances or tailoring at different times?
  • What is the current policy environment? Is there any existing legislative framework?

Understanding the community

Two types of knowledge about the community are important — the first is the socio-economic characteristics of the target community and the second is the level of willingness by the community to engage with the NRM managers and the proposed policy intervention.

Pertinent questions here include:

  • Are resource managers aware of the problem and potential management solutions? Is there acceptance of the problem and the range of solutions?
  • Is information readily available; can it be cost-effectively accessed; is there information asymmetry between land managers and government?
  • Are land managers motivated? Are there community or industry networks to assist communication?
  • Do land managers have a capacity to adopt solutions (e.g. skills and financial resources)? Are there differences between landholder management styles, productivity and cost structures? Are some land managers operating with low margins and/or high levels of indebtedness? This may make it difficult to convince them to make changes.
  • Are there lifestyle or risk factors impacting on the adoption of management practices? For example, are there absentee landholders without time and expertise to implement solutions?
  • Are there social constraints to change? For example, what is the current perception of land managers with respect of to duty of care?

Identifying the cause of market failure

Essential to any form of government intervention is that policies address the fundamental causes of the problem, that is, they address the market failures that prevent markets efficiently managing our natural resources. Poorly aligned policies will not overcome impediments to change or provide enduring incentives for change.

Pertinent questions here include:

  • What are the sources of market failure?
  • Are there polices already in place that are either causing the problem in the first place or that through minor adjustment could address the problem?
  • What policies have been applied in the past? Were these successful, and why or why not?
For natural resource management, the underlying cause of market failure is generally the lack of well-defined and defendable property rights and/or the high cost of overcoming information failures. This may be due to scientific uncertainty, uncertainty by firms and land managers about the techniques available, lag times or information asymmetry.


Further information to aid with step 1 can be found by considering the case studies to see how other NRM managers have tackled these issues, or by talking to an expert or MBI practitioner — see the Little Orange Book on the program web site at www.marketbasedinstruments.gov.au.