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Step 2: Establishing the case for a policy intervention


The framework presented in this section is based on Pannell (2008), Public benefits, private benefits, and policy intervention for land-use change for environmental benefits, Land Economics (forthcoming), see www.sif3.org Links to an external site that may not be a government site


Having established that market failures exist, we next need to establish that the benefits of intervention will exceed intervention costs. It is not anticipated that the NRM manager would at this step develop a detailed quantification of likely benefits and costs of policy intervention. Rather, the intention is to establish whether a policy intervention is likely to be warranted and to help guide instrument choice. For example, in some cases, it may be that the public benefits of intervention may not be sufficient to warrant the necessary management changes and associated costs.

Through considering likely costs and benefits, opportunities for the use of MBIs will be:

  • to encourage a positive NRM change where there are private costs to the firm or land manager of undertaking change but greater public benefits —that is, a net social benefit when all costs and benefits are considered; or
  • to discourage a negative NRM change where there are private benefits to the firm or land manager of undertaking certain NRM practices but even greater public costs — so, again, there would be a net social benefit from policy intervention when all the costs and benefits are considered.
 

It should also be noted that government’s assessment of the case for policy intervention needs to be moderated by broader objectives. So, for example, policies to promote some NRM changes that are likely to come at a small net economic cost may be considered acceptable where the change is considered important to promote the longer-term sustainability of the resource base or key environmental amenities.

Having determined that a policy intervention is appropriate, an MBI is likely to be attractive (relative to a ‘one size fits all’ regulatory instrument) when there are large variations in the ability and cost-effectiveness of potential participants to provide the desired NRM outcome. The key advantage of an MBI is in its ability to utilise competitive processes to identify those land managers who can most cost-effectively provide the desired NRM services, thus reducing overall NRM management costs. As government and regional NRM groups generally do not have access to this information, market instruments can be used to reveal cost-effective opportunities and to allocate incentives for them to be undertaken.

In addition, there would be a greater likelihood of being able to craft an MBI that would be superior to a regulatory instrument where:

  • there is a known, established and enforceable duty of care;
  • regulation would be difficult to design, implement and administer or enforce;
  • there are a large number of potential market participants;
  • there is flexibility in the range of responses that will deliver the desired outcome;
  • impacts of similar actions (e.g. land use change and management action) vary across the landscape; and
  • there is scope for innovation in improving land management for NRM outcomes.