Monthly Archives: March 2010

167 – Broad versus targeted environmental investment

Should environmental managers spread their resources across as many projects as possible to encourage broad participation, should they target a small number of major projects, or something in between?

Prior to the Caring for our Country program in July 2008, Australia’s main national environmental programs tended to have a philosophy of trying to get large numbers of people involved in environmental activities. This started with the National Landcare Program and continued on in the much larger Natural Heritage Trust and the National Action Plan for Salinity and Water Quality.

I was one of a number of vocal critics of this approach, concerned that the resources of these programs were being spread so thinly and undiscriminatingly that we were missing out on opportunities to make a much greater difference to the environment.

On the other hand, many people who are involved in environmental programs in one way or another continue to believe that the programs should emphasise broad participation, rather than concentrating resources on a smaller number of larger investments. I suspect that after two decades of this being the emphasis, it has become embedded in the culture, and shapes the mindsets of many stakeholders.

There are arguments on both sides of the debate, so I thought it might be a good idea to collect them all together and see how they stack up overall. There isn’t space here to discuss them all in detail. For that, see Pannell (2010). Here is a brief summary of my assessment of the factors that influence whether broad or targeted investment is better.

(a) Adoptability of management changes

In broadly participatory projects, the funding available to foster changes by any one landholder is small, so such projects rely on voluntary action in response to information, encouragement, peer pressure and small additional funding. The success of this approach is dependent on the required management changes being sufficiently attractive to landholders that they will adopt them at the required scale voluntarily. If the required changes are highly adoptable, then broadly participatory projects could perform relatively well. However, the reality is that, while some environmental practices are highly adoptable in particular situations, many are not.

(b) Social capital and human capital (community capacity)

Projects that foster broad participation in environmental works may build up “social capital”, especially if the project involves collaboration between landholders. Social capital refers to features of social organisation that can increase the efficiency of coordinated action – features such as trust, social norms and social networks. This may enhance future adoption of changed practices (if the practices are sufficiently adoptable – a big “if”).

Australia’s environmental programs have also emphasised the development of human capital, such as skills at organising projects, knowledge and skills for implementing specific environmental works and knowledge of environmental threats. Unlike social capital, enhancement of human capital seems to provide no rationale for favouring broadly participatory projects relative to targeted projects. It could be done broadly or in a targeted way, probably with similar benefits per dollar invested.

(c) Marginal benefits of investment

The relative merits of broad participation and targeted projects are influenced by the relationship between budget level per participant and environmental benefits per participant. Figure 1 shows three possible shapes for the relationship. The relationship in panel (a) (diminishing marginal environmental benefits with increasing budget level per participant) would tend to favour broad participation to some extent, as smaller projects have higher marginal benefits in this case.

 

Figure 1. Three possible relationships between budget level per landholder and environmental benefits, with implications for the relative merits of broad versus targeted approaches to environmental investment.

 

Panel (b) illustrates constant marginal environmental benefits. In cases where this applies, broad and targeted projects would be equally favoured.

Panel (c) shows a sigmoidal relationship, with increasing marginal benefits followed by decreasing marginal benefits. This would be relevant, for example, where there is a minimum threshold level of activity required of landholders before worthwhile environmental benefits start to be generated. In this case, given a fixed budget, it would be better to fund fewer landholders to a level that took them above the threshold level.

(d) Leverage

The level of environmental services provided voluntarily can be influenced positively or negatively by the provision of support from an environmental program. The story here is complex – see Pannell (2010). Overall, my conclusion is that leverage does not clearly favour one approach or the other.

(e) Heterogeneity

The benefits of a public environmental investment are sensitive to many factors, including: the value of the environmental assets; the degree of environmental degradation the assets face; the technical feasibility of avoiding or reversing that degradation; the costs to landholders of adopting the environmental practices; the skills, knowledge and interests of local landholders; and the likelihood of receiving required cooperation from other agencies and organisations. Each of these factors is likely to be highly variable from region to region, from state to state, and from issue to issue. This means that some projects will have much higher benefits per dollar invested than others, providing a very strong motivation for targeted investment rather than broad participation. This is probably the strongest single reason for or against either of the investment strategies.

(f) Risk

It might be considered that projects that encourage broad participation should be less risky than targeted projects that put the available eggs in fewer baskets. On the other hand, if targeting investment, it may be possible to identify particular projects that are considered to be especially low-risk and highly likely to deliver environmental outcomes, such that a targeted strategy is less risky. The latter is a more relevant consideration (see Pannell, 2010).

(g) Information

Targeting investment requires more information. This contributes to transaction costs, but allows better investments to be identified.

(h) Transaction costs and administration costs

A targeted strategy requires an investment in information collection and analysis to identify target investments. On the other hand, participatory projects have relatively high transaction costs for communications and engagement. I don’t think either approach is particularly favoured by consideration of transaction costs.

(i) Government failure

There is perhaps a higher risk of government failure under a targeted project if the selection of targets is poor. In such a case, the targeted project may fail to generate the benefits of targeting that would be needed to justify giving up the benefits of a broadly participatory approach. Other forms of government failure may perhaps be more likely to occur in broad participation projects, such as weak project evaluation and weak enforcement of compliance.

(j) Equity

Many people seem to think that a broadly participatory approach is fairer, because it gives more people a chance to receive support. Another commonly expressed view is that farmers who are already voluntarily undertaking environmental actions should be prioritised to receive funding, in part because this is seen as fair. This tends to encourage a broad and relatively untargeted allocation of funds. However, these are very narrow views of equity. When the equity issue is considered more fully, I don’t think it clearly favours either investment approach.

(k) Politics

A broad participation approach would be favoured by politicians with a strong rural constituency, as it involves engagement with, and perhaps some funding for, a relatively large number of landholders, who are also voters.

Table 1 provides a summary of the analysis for each issue. Clearly, there are arguments in favour of both strategies. It is also apparent that different circumstances will favour one or the other approach (e.g. different relationships between budget level and marginal environmental benefits).

 

Table 1. Summary of the influence of various issue on the favoured strategy: broad versus targeted.

IssueStrategy favoured
Adoptability of worksBroad if required management changes are highly adoptable, targeted otherwise
Social or human capitalBroad for social capital, neither for human capital
Marginal benefits(a) Broad, (b) neither, or (c) targeted, depending on the relationship between budget level and environmental benefits (see Figure 1)
LeverageBroad if positive leverage, targeted if crowding out
HeterogeneityTargeted very strongly favoured
RiskTargeted moderately favoured by selection of low-risk projects
InformationTargeted
Transaction costsTargeted, due to high transaction costs of engagement under broad
Government failureReduces the benefits of targeted
EquityNeither
PoliticsBroad for rural constituency, targeted for urban constituency

 

Overall, the arguments in favour of a broad participatory approach to environmental policy are not strong. There is no issue that provides a compelling case for emphasising broad participation. The strongest reason in favour of it appears to be politics, rather than environmental protection. The poor adoptability of many environmental actions is an important impediment to the success of broadly participatory projects. On the other hand there is one very strong argument in favour of targeting: heterogeneity. The potential gains in environmental values from sound and effective targeting are very large. The main argument against targeting is the risk of government failure. Unless targets are chosen well, based on sound and comprehensive analysis of adequate data, the benefits of targeting will be limited.

This is not to say that projects seeking broad participation should never be funded. I would like to see environmental programs making explicit and well-considered decisions about the balance of investment between the two approaches, weighing up the key factors such as adoptability and heterogeneity.

David Pannell, The University of Western Australia

Further reading

Pannell, D.J. (2010). Broad participation versus targeted investment in environmental programs, INFFER Working Paper 1002, University of Western Australia. Full paper (100K)