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Policy perspectives on rural practice change David Pannell ARC Federation Fellow School of Agricultural and Resource Economics University of Western Australia

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Key messages <ul><li>Think systematically about choice of policy mechanism for practice change </li></ul><ul><li>The public: private benefits framework can help choose </li></ul><ul><li>Focus extension efforts onto practices that are adoptable </li></ul>

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Practice change: Why worry? <ul><li>Why not leave the whole thing up to farmers and their business advisors? </li></ul>

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Market failure <ul><li>Externalities </li></ul><ul><ul><li>Relative advantage diverges from public benefit </li></ul></ul><ul><li>Public goods – free rider problems </li></ul><ul><ul><li>e.g. Weak incentives for private sector to research practices that can be easily copied </li></ul></ul><ul><li>Information asymmetry </li></ul><ul><ul><li>Government may have better knowledge about a practice </li></ul></ul><ul><ul><li>Mainly relevant to new practices </li></ul></ul>

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Importance of adoption factors by adoption phase *** * Disadoption * *** * Revision * *** * Adoption *** ** ** Trial eval. ** * *** Non-trial evaluation *** Awareness Technology: trialability Technology: relative adv. Social

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Choosing policy mechanisms Public: Private Benefits Framework

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Definitions <ul><li>“ Private benefits” relate to the landholder making the decisions (internal) </li></ul><ul><ul><li>≈ relative advantage or “adoptability” </li></ul></ul><ul><li>“ Public benefits” relate to all others (external) </li></ul><ul><ul><li>neighbours, downstream water users, city dwellers interested in biodiverity </li></ul></ul>

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Possible projects Each dot is a set of land-use changes on specific pieces of land = a project. <ul><li>Which tool? </li></ul><ul><li>Incentives </li></ul><ul><li>Extension </li></ul><ul><li>Regulation </li></ul><ul><li>New technology </li></ul><ul><li>No action </li></ul>Lucerne Farm A Lucerne Farm B Forestry in water catchment Current practice

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Alternative policy mechanisms for seeking changes on private lands A Includes polluter-pays mechanisms (command and control, pollution tax, tradable permits, offsets) and beneficiary-pays mechanisms (subsidies, conservation auctions and tenders). Informed inaction No action Development of improved land management options, e.g. through strategic R&D Technology change Technology transfer, education, communication, demonstrations, support for community network Extension Financial or regulatory instruments A to inhibit change Negative incentives Financial or regulatory instruments A to encourage change Positive incentives Specific policy mechanisms included Category

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Simple rules for positive incentives <ul><li>1. No positive incentives for land-use change unless public net benefits of change are positive. </li></ul><ul><li>2. No positive incentives if landholders would adopt land-use changes without those incentives. </li></ul><ul><li>3. No positive incentives if costs outweigh benefits overall. </li></ul>

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Simple rules for extension <ul><li>4. Not extension* unless the change being advocated would generate positive private net benefits (the practice is ‘adoptable’). </li></ul><ul><li>5. Not extension* where a change would generate negative net public benefits </li></ul><ul><li>* Extension as the dominant tool </li></ul>

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Simple public-private framework

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<ul><li>That was based only on simple rules </li></ul><ul><li>The following version accounts for additional complexities </li></ul><ul><ul><li>Costs of learning/transition </li></ul></ul><ul><ul><li>Lags to adoption </li></ul></ul><ul><ul><li>Partial effectiveness of extension </li></ul></ul><ul><ul><li>Transaction costs </li></ul></ul><ul><ul><li>Need for higher BCR </li></ul></ul>

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Complex version

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Implications for policy <ul><li>Choice of policy tool depends on individual situation </li></ul><ul><li>Best projects have private net benefits around zero (+ve incentives) or slightly positive (extension) </li></ul><ul><li>Relative advantage (“Adoptability”) is a key </li></ul>

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Adoptability Is the innovation adoptable? Yes. Then why is it not adopted? No. What to do? It is new. Adoption will occur. Promote Awareness. Learning failure. Target that failure. Lack skills, resources. Training. Wait for good year. Develop a better technology: one that is adoptable. Public benefits? Financial payments. Regulation. No action.

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Implications for policy <ul><li>Don’t default to extension to promote practice change </li></ul><ul><ul><li>First check adoptability </li></ul></ul><ul><li>Promoting practices with poor adoptability … </li></ul><ul><ul><li>erodes credibility </li></ul></ul><ul><ul><li>wastes time and resources </li></ul></ul><ul><ul><li>burns up good will </li></ul></ul>

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Key messages <ul><li>Think systematically about choice of policy mechanism for practice change </li></ul><ul><li>The public: private benefits framework can help choose </li></ul><ul><li>Focus extension efforts onto practices that are adoptable </li></ul>