Design vs' Performance Based Environmental Policy Instruments

1
Design vs. Performance Based Environmental
Policy Instruments

• Jim Shortle
• Penn State University

2
Basic Choices In The Design of Environmental
Policy Instruments

• Who to target?
• Input manufacturers
• Farmers (which ones?)
• What to target?
• Inputs/practices (means)
• Environmental outcomes (ends)
• What mechanism?
• Command and control
• Economic incentives

3
Agro-Environmental Targets
design-based
Stream Loads Discharges
performance based
Water Quality Indicators
4
What is the preferred target?

• Discharges provided that they
• can be metered with reasonable accuracy at
  reasonable cost
• are not highly stochastic

5
What is good about discharges?

• Ends versus means
• Cost-effectiveness
• Firm level
• Watershed level
• Innovation incentives

6
Point vs. Nonpoint Pollution Problems

• Point sources
• Discharges are observable at reasonable cost
• What mechanism (CC, incentives) should be
  applied to discharges?
• Nonpoint sources
• Discharges are generally not observable at
  reasonable cost
• What mechanism to apply to which target?

7
Criteria for Targets

• Correlated with environmental conditions
• Targetable in space and time
• Enforceable
• Public monitoring and enforcement costs
• Private compliance costs

8
Agro-Environmental Targets
design-based
Field Losses (Farm Level Proxies)
Stream Loads Discharges (Estimated Discharges)
performance based
Water Quality Indicators