PRINCIPLES OF ENVIRONMENTAL POLICYMAKING PRINCIPLES OF ENVIRONMENTAL POLICYMAKING David Zilberman Jennifer Alix Department of Agricultural and Resource Economics University of California, Berkeley

Presentation Outline Identifying the problem Identifying the problem Toward policy interventions Toward policy interventions Constraints on policymaking and implementation Constraints on policymaking and implementation

Identifying the problem Global v. Local Global Environmental Problems Global Environmental Problems -require cooperation among many countries -resources in question are so large that everyone must share them (eg. Air,transboundary rivers, ozone layer) -resources in question are so mobile that they cross national borders (eg. Migratory birds and straddling fish stocks) Local Environmental Problems Local Environmental Problems -can be dealt with at the local or regional levels (eg. Pesticide contamination, industrial pollution, soil erosion)

Causes of environmental problems Externalities Externalities Tragedy of the commons Tragedy of the commons Public goods Public goods Myopic behavior Myopic behavior Failures of Governance Failures of Governance

Externalities in production process Definition: an activity damages the environment while not hurting the person who undertakes the activity.

Tragedy 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 goods Public 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 objectives Policy objectives Policy outcomes Policy outcomes Policy Tools Policy Tools

Policy objectives Efficiency Efficiency Cost Effectiveness Cost Effectiveness Distributional Objectives Distributional Objectives Variability Reduction Variability Reduction Environmental and Health Quality Parameters Environmental and Health Quality Parameters

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

Consumer and producer surplus

Cost 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 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 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 constraint or 2) a policymaker may take a cost-minimization approach and design policies to achieve a target level of environmental or health conditions.

Policy outcomes Behavior Modification Behavior Modification Resource Reallocation Resource Reallocation Resource and capital Augmentation Resource and capital Augmentation

Behavior modification Examples: Mandatory schooling, soil conservation programs and food subsidies. Examples: Mandatory schooling, soil conservation programs and food subsidies. Short v. Long-run behavior modification: Short v. Long-run behavior modification: - Short run: modification consists of changes in existing production and consumption patterns - Short run: modification consists of changes in existing production and consumption patterns -long run: change may involve adoption of new practices and technologies.

Resource 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 Augmentation Expansion of economic activities through such activities as: Expansion of economic activities through such activities as: -tax relief during recession -subsidy for certain economic activities Policies often result in the expansion of: Policies often result in the expansion of: -Physical capital (Infrastructure. Ex. dams) -Human capital (Transfer of knowledge and skills) -Social and natural capital (Ex. Improvement in environmental quality)