Environmental Engineering Reference
In-Depth Information
of public goods, in particular they are indivisible and perhaps also non-
excludable, making their exchange in markets unlikely (Table 4.1).
The public good nature of biodiversity creates dii culties for its valu-
ation. These will be discussed in some detail in the sections that follow.
Because managed landscapes provide high levels of
unpriced
public ben-
ei ts, in terms of wildlife and landscape quality, private agents will have no
incentive to take account of these benei ts in decisions over land use.
Conventional economic theory seeks to cast government in the role of
an objective and well-informed 'third force' (in addition to individuals
and i rms), with some ability to intervene to correct for market failures.
Government or policy failure occurs when policy decisions required to
correct for market failure are not implemented and fail to fully recognize,
or incorporate, the values associated with environmental resources. Policy
failure may also arise where government decisions themselves induce eco-
nomic inei ciencies. For example, agri-environment policies, through cre-
ating incentives for farmers to expand production, may result in a greater
privately optimal level of degradation than would be the case in the absence
of such policies. Poorly formulated policy instruments and incentives may
distort the allocation of resources unintentionally. Simpson et al.
(1998)
suggest that high stocking rates are caused by incentives to graze moorland
to achieve proi t maximization, encouraged by support from the Common
Agricultural Policy (CAP). They indicate that increases in the ewe l ock
across the Northern Isles (in Orkney from 37 000 in 1983 to nearly 55 000
in 1992, and in Shetland from 116 000 in 1982 to 156 000 in 1993) was in
response to the EU's sheep meat regime introduced in the early 1980s. The
scheme of ered headage payments and a variable premium in fat lamb sales.
They suggest that the policy has been sui cient to increase stocking levels,
and hence heather utilization rates, across the Northern Isles. McNeely
(1993) suggests that in Botswana, national and European Union subsidies
have led to excessive uncontrolled grazing of rangelands and degradation
of grazing savanna, which have af ected the long-term productivity of the
resource. Subsidies that aim to promote cash crops to secure export revenue
may result in land degradation, soil nutrient losses and a reduction in the
resilience of ecosystems (Grainger, 1990). Royalties in forestry can lead to
excessive rates of deforestation (Repetto, 1989; Barbier et al.,
1991).
The catch-all term 'market failure' is dei ned so as to refer to all situa-
tions where the market signals perceived by private individuals fail to coin-
cide with social values (and fail to produce economic ei ciency). However,
some necessary conditions for market ei ciency, which may be violated
in practice, tend to be omitted from discussions of market failure, and are
worth briel y mentioning here. The discussion above relates mainly to what
might be called the 'complete set of markets' condition (Common, 1995).
