Economics, Environment, Natural resource management

96 – Economic questions for environmental managers

Economics can help environmental managers in a wide variety of ways. Here is a list of questions and issues that economic analysis can help to address.

There is a workshop in Perth this week about the potential contribution and role of economics (and other social sciences) in supporting regional environmental management bodies. The focus is on land degradation and other environmental issues that depend on how private lands are managed.

I thought that a useful way to explain this briefly would be to present a range of specific questions that economics can help to answer. They are broken up into groups, according to whether they apply at the farm level, the catchment level, the regional level, or the national level.

Farm level

• Are particular farming practices (environmentally friendly ones) likely to be attractive to commercial landholders? Under what circumstances?

  • How do new land-use options that are intended to be environmentally friendly best fit into the farming system? In which rotations? On which soil types? What other adjustments on the farm will be beneficial if the new land use is adopted?.
  • What features of new farming practices are the main drivers of their farm-level economics?
  • Which options are likely to be win-win for farmers and the environment?

Sometimes people assume that to be useful for environmental managers, economic analysis has to directly model the environmental processes of concern. This is not always correct. The above questions are important for environmental managers, but they can be addressed without explicitly modelling the environmental impacts of the new practices.

The catchment level

  • What are the trade-offs between economic outcomes and environmental outcomes at the catchment scale? (to help set targets).
  • How large (in economic terms) are are the off-site/downstream economic impacts (positive or negative) from particular farming practices?
  • How would agricultural management need to be adjusted in a catchment to achieve particular environmental targets at least cost?

Regional level

  • Is a particular program or intervention by the regional body worthwhile? (benefit:cost analysis)
  • Which policy tool is most appropriate in a particular case? (e.g. extension, grants, regulation, MBIs, R&D, direct intervention with engineering, no action). Different tools suit different circumstances (Ridley and Pannell, 2005; Pannell, 2006).
  • How should the funds of the environmental program be targeted to achieve the greatest environmental benefit for the available resources?
  • How should the regional body strike a balance between (a) highly targeted investment in on-ground works that pays off in the relative short term, and (b) investment in development of new land-management options, that is less targeted and slower to pay off, but applicable over much larger areas, and would reduce the cost of subsequent targeted investments?
  • How should economic policy instruments (MBIs in Australian parlance) be designed and implemented to achieve the greatest benefits?
  • What is the value of an environmental improvement? (non-market valuation)

National or international level

  • What are the market prospects for products from a new environmentally friendly land use?

Other positive features of economics when used to address these questions

  • Economic modelling helps to integrate biological and physical information within a consistent framework. Economists working on these issues are used to talking to various disciplines.
  • Economics deals well with trade-offs, which are an essential feature of environmental management.
  • Economics helps to frame the discussion in a way that is useful for decision making.
  • Economics helps to prioritise which of the many unknowns are the important ones.
  • Economics can explicitly deal with uncertainty in a variety of ways.

David Pannell, The University of Western Australia

Further Reading

Pannell, D.J. (2001). Economic Dimensions of Landcare, State Landcare Conference 2001, 11-14 September 2001, Mandurah Western Australia, pp. 131-144. Full paper (74K)

Pannell, D.J. (2003). Heathens in the chapel? Economics and the conservation of native biodiversity, Presented at a workshop of the Cooperative Research Centre for Plant-Based Management of Dryland Salinity, “Biodiversity Values in Agricultural Landscapes”, Rutherglen, Victoria, 14-15 October 2003. Full paper (109K)

Later published as:

Pannell, D.J. (2004). Heathens in the chapel? Application of economics to biodiversity, Pacific Conservation Biology 10(2/3): 88-105.

Pannell, D.J. (2006). Public benefits, private benefits, and the choice of policy tool for land-use change, Full paper (150K)

Pannell, D.J., Marshall, G.R., Barr, N., Curtis, A., Vanclay, F. and Wilkinson, R. (2006). Understanding and promoting adoption of conservation practices by rural landholders. Australian Journal of Experimental Agriculture 46(11): 1407-1424. Access paper at Journal web site here. Pre-publication version available here (161K).

Ridley AM and Pannell DJ (2005). SIF3: An investment framework for managing dryland salinity in Australia. SEA Working paper 1901. CRC for Plant-based Management of Dryland Salinity, University of Western Australia, Perth.