FOREC 473 Content

Why do people disagree with policies?

Due to different objectives, values, beliefs, and perspectives of costs/tradeoffs

What is a policy?

Principals that govern action

What guides the actions established in a policy?

The ends (objectives/results) determine means (actions)

What action has costs but often gets overlooked?

Government inaction

How is policy effectiveness measured?

By translating a policy objective into an easily measured progress (ie. sustained yeild as a measure for overall community stability, healthy forests, etc.)

What are the two approaches used to determine policy objectives and actions?

Sub-optimization and benefit-cost analysis

What is the sub-optimization method of policy creation?

Scientists identify the tradeoffs and determine priority of objectives

What is benefit-cost analysis method of policy creation?

Scientists attempt to value consequences of each potential action in a common metric

What is one potential problem with choosing specific policymakers?

The unknown/unmeasurable incentives that drive their decisions

What is normative policy analysis?

An evaluation based on what a policy should be to maximize social welfare

What does public choice policy analysis?

An evaluation based on how policymakers actually behave and how self-interest shapes their incentives

What is the 10 am policy in wildfire and what is the overall objective?

Suppress/contain wildfires by 10 am of the next day; main objective is to reduce wildfire costs

What is an externality?

When decision makers do not face the full cost or benefit from a decision they made

What is the rebound effect?

When implementation of a policy does not change the overall costs or benefits of an action over time

What are the 4 different rationales for policy?

Social/distributional concerns, externalities, imperfect information, and missing markets

How are social/distributional concerns a rationale for policy creation?

Can ensure long-term monetary flow, community stabilization, and sustainable resource extraction

How are externailities a rationale for forest policy creation?

Policy creation can help reduce or remove an externaility

How is imperfect information a rationale for policy creation?

Providing information can give companies the opportunity to change in favour of overall social goals

How is missing markets a rationale for forest poicy creation?

Sometimes mutaully beneficial trades do not occur because the institutions needed for transactions do not exist or they are too costly to use

What are the 4 types of goods?

Private, public, club goods, and common pool resources

What does it mean for a good to be rival?

If someone uses a particular good, someone else is restricted from using that same good

What does it mean for a good to be excludable?

Others can be prevented from getting access to the good

What is the free rider problem?

A situation that occurs when individuals benefit from a resource, but have no incentive to pay for it, leading to potential overuse or lack of funding

How does the implementation of a tax fix an negative externaility?

It makes the firms internalize the costs they impose on others, leading to a more efficient allocation of resources

How does the implementation of a subsidy address a positive externaility?

It provides financial support to the firms to encourage greater investment in the actions that cause the externaility

What is the best use for public provision?

When dealing with a public good

What is the Coase Theorem and what are the 2 conditions?

Affected parties can bargain to reach an efficient outcome if, and only if (1) property rights are clearly defined and (2) transaction costs are sufficiently low

When does the Coase Theorem not apply?

When many individuals are affected (a free rider problem may occur instead)

How can the introduction of policy be beneficial?

It defines/clarifies rights, creates mechanisms for exhange, and can reduce transaction costs

When is the creation of markets the best policy instrument?

For situations concerning private goods (prices can communicate scarcity, creating incentives to conserve, substitute, innovate, etc.)

What are the 4 main situations where markets can fail?

Externailities are present, imperfect information exists, the good is actually a public good (requires public provision), or the market is just missing

What is a missing market?

A situation where demand for a good or service exists, but no market forms to supply it

Why do missing markets/market failures need to be dealt with?

They lead to economic inefficiency and lost welfare, as socially valuable goods may be underprovided or not provided at all

What does it mean for a policy to be economically efficient?

The policy results in resources being allocated to their highest-use benefit

What are the 3 main things that forest policy needs to consider?

Efficiency, equity, and rights

What does efficiency refer to regarding forest policy?

What generates the most benefits

What does equity refer to regarding forest policy?

Who bears the costs and benefits of an action

What does rights refer to regarding forest policy?

Who should have rights and who doesn't have rights to use a resource

What are the 5 instruments of policy?

Command and control, economic incentives, creation of a market, information policies, and direct public provision

How does command and control work?

Rules and/or restrictions are implemented

How do economic incentives as an instrument work?

A tax is imposed or compensation is paid

What does creating a market do as a function of being a policy instrument?

It creates a way for buyers and sellers of a good to exchange said good in a way that encourages equity and/or efficiency

How do imperfect information policies work as an instrument?

Information is provided to a firm to encourage behavioural changes

How does dircet public provision work as a policy instrument?

The government controls a good, removing private ownership

What is a cap and trade approach to solving a problem?

A cap on an activity is created, then regulatory bodies distribute aloownaces which can be used to permit a certain amount of the capped activity. Firms that do the activity to a level below the cap recieves credits, which can be sold or banked. Firms that do the activity to a level above the cap are penalized.

What is an example of successful cap and trade efforts?

The Montreal Protocol

What are non-use rights/values?

The worth people place on an environmental resource even if they never intend to directly use or experience it

How are non-use rights/values used in policy creation?

They often justfiy conservation costs that do not create immediate economic benefits and, therefore, cause policy makers to turn to the politcal process instead of creating a market

What is a prime example of policy using non-use rights/vbalues for conservation?

The Wilderness Act (US)

What is additionality?

An unintended consequence of policy; the 'added value' of a policy; the changes that hapoen above and beyond what would have happened if there had not been intervention

What are the 8 reasons policy can go wrong?

Costs, unintended reponses, additionality, leakage, multiple objectives, second-best problems, and government failure

What are the 2 types of policy costs?

Compliance costs and administrative costs

What are complaince costs?

Expenses a firm incurs to adhere to laws, regulations, and standards

What are administrative costs?

Resources the government spends designing, monitoring, and enforcing policy

What does a market failure justify? What does it NOT justify?

It justifies intervention, but it does NOT justify ANY intervention at ANY cost

What is deadweight loss?

The total economic welfare lost when a market is not operating at peak efficiency

What does it mean if deadweight loss is still present even if policy was effective?

The benefits of the policy were not worth the costs

What is capital stuffing?

An unintended consequence of policy where firms tend to increase their investment in an activity to counteract restrictions on that activity

How to policy makers counteract capital stuffing?

Create a new policy or amend a policy to change incentives even when they are not explicity designed to do so

Is additionality good or bad?

May seem unnecessary now, but could be beneficial in the future by setting a precendent or encouraging others to do the same

What is leakage?

An unintended consequence of policy where the policy reduces an activity in one area but some of that activity ends up shifting elsewhere

What is the Tinbergen rule?

Achieving many independent policy targets generally requires multiple independent policy instruments (1 instrument per target)

Can policy instruments conflict? What can happen as a result?

Yes, they can conflict and undermine one another

What is a second-best problem?

If there are multiple problems, and one cannot be eliminated, correcting another problem does not necessarily improve outcomes for society

In regards to second-best problems, what 2 things can happen if another problem attempts to be corrected?

Society may recieve no benefits or consequences or

What 2 ways does government failure occur?

Info/administration contraints (lack of info or funds to enforce policy) and political incentives (policy makers may submit to thier own incentives)

What is a government failure?

The creation of economic ineffiency by government intervention ie policy