Broad participation versus targeted investment in environmental programs

David J. Pannell

School of Agricultural and Resource Economics, University of Western Australia, 35 Stirling Highway, Crawley, WA, Australia 6009

Abstract

Environmental managers and policy makers with limited resources must strike a balance between targeting those resources to particular high-priority environmental assets or regions, and using them to encourage broad voluntary participation in environmental programs. Different programs have placed different relative emphases on these alternative approaches. Each strategy has advantages and disadvantages, so it is not necessarily obvious how the balance between them should be struck. A variety of issues that influence the relative merits of the two approaches are identified and discussed, including: social and human capital, spatial heterogeneity, leverage, risk, transaction costs, government failure and politics. The overall assessment is that there is no issue that provides a compelling case for emphasising broad participation; the strongest reason for favouring broad participation appears to be political motivation. The potential gains in environmental values from sound and effective targeting are very large, due primarily to spatial heterogeneity in factors such as the values of different environmental assets, the severity of threats they face, the technical feasibility of averting those threats and the adoptability of required management changes. On the other hand, if the quality of analysis used to prioritise target investments is not high, the benefits of targeting will be greatly reduced. Therefore the recent trend towards more targeted environmental investment in Australia is a positive development, but the process of choosing those targets needs particular care and attention.

Introduction

Some publicly funded environmental programs aim to encourage broad participation by land managers, raising their awareness of environmental issues and possible management actions in the hope that they will adopt those actions. Some other programs are much more targeted, selecting specific environmental assets that are in particular need to protection or repair, and focussing funds on those particular assets. There is clearly a continuum of potential funding allocations, ranging from 100 per cent for broad participation through to 100 per cent targeted to specific assets. Selecting the proportion of their budget to allocate to each of these strategies poses a challenge to environmental managers. Each option has potential advantages and disadvantages, so the optimal balance of investment is not obvious. However, past research on decision making in environmental programs has not addressed this issue, tending instead to focus mainly on targeting of investment (e.g. Hajkowicz and McDonald, 2006) but less so on issues around participation (Fiorino, 1990), and not at all on the balance between them. This paper is intended to address this gap.

The importance of this issue was highlighted to the author as a result of working with Australian regional environmental management bodies to assist them with their decision making processes (e.g. Roberts and Pannell 2009). The bodies had been operating with funding programs that had previously emphasised broad participation (the “National Landcare Program” (Lockie and Vanclay, 1997), the “Natural Heritage Trust” (Crowley, 2002), the “National Action Plan for Salinity and Water Quality” (Pannell and Roberts, 2010)) but these programs had been replaced by “Caring for our Country” which had moved towards more targeted investment. For example, under previous programs, regional environmental managers spread their funding from the Australian Government across large numbers of landholders in a relatively untargeted way (Pannell and Roberts 2010), but under Caring for our Country the intent is for funding to be allocated to priority assets identified in the program’s Business Plans (Anonymous 2008a; Anonymous 2009) and Outcome Statement (Anonymous 2008b).

In discussions, the tension between broad versus targeted strategies was frequently raised as a dilemma and a concern by regional environmental managers (Marsh et al. 2010). It was clear that managers lacked a rigorous basis for considering the trade-offs involved, and in many cases they focussed their consideration of the problem on a small subset of the relevant issues.

The paper includes a list of factors that are relevant when balancing public investment between broad participation and targeted investment. Each factor is described and discussed, and its relative importance is considered. Implications for government programs are discussed.

Factors influencing the balance of public investment

The optimal balance between broad participation and narrowly targeted projects is influenced by a wide range of considerations. Each of a set of identified issues is described and discussed below, and the more important factors influencing the relative merits of the two strategies are identified.

(a) Adoptability of management changes

Broadly participatory projects necessarily involve spreading the available resources across a large number of participants. 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. For example, under the National Action Plan for Salinity and Water Quality in Australia, over 40 per cent of program funding was spent on extension, education and capacity building (Pannell and Roberts 2010). Where funding was provided to landholders, it was at very low levels. For example, some regional bodies offered one-off “incentive payments” of A$60 per ha for planting of lucerne or alfalfa (Medicago sativa) to reduce groundwater recharge. Such payments may serve to encourage farmers to trial the use of lucerne, but were much too low to offset any significant losses that farmers might incur (Kingwell et al. 2003). Hence, in the long term when incentives were removed, the practices were often dis-adopted by farmers. Thus, the success of extension or small temporary incentives 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.

On the other hand, if the required management changes do not provide a positive “relative advantage” to landholders, they are unlikely to be adopted voluntarily without sufficient financial support or regulatory enforcement (Pannell et al. 2006). For example, in many regions of Australia, the types of management responses being promoted under the National Action Plan for Salinity and Water Quality were not attractive to farmers, especially when adopted at a large scale (Pannell 2001; Kingwell et al., 2003; Cary and Roberts, 2009). In this circumstance, a strategy of broad participation is highly unlikely to be effective. A targeted strategy would be superior as it allows the possibility of funding to be focused onto relatively small areas, so that more expensive works can be undertaken that would not otherwise be acceptable to landholders.

(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 (Putnam 1993; Halpern 2005). High levels of social capital can lead to spontaneous cooperation among community members, potentially resulting in greater achievement of environmental outcomes. It is likely that more broadly inclusive projects enhance social capital by more than do targeted projects involving only certain groups, regions or individuals. To the extent that this is true, and assuming that social capital does lead to increased environmental outcomes in future, then broad projects would tend to be relatively favoured by environmental managers.

The importance of social capital for environmental management depends on the nature of the environmental issue being addressed. Some issues have a high requirement for cooperation (e.g. management of spreading weeds or pests), while others are managed separately by individual landholders (e.g. dryland salinity in parts of Western Australia – Pannell et al. 2001), and so benefit less from cooperative action. Even in the latter case, however, social capital may increase the contributions by landholders to government programs that are perceived to provide public benefits.

The benefits of social capital are well recognised and multifaceted, extending into numerous areas of community activity other than environmental management. On the one hand, it might be argued that these spin off benefits from broadly participatory environmental projects should encourage our investment in them, while on the other hand it could be argued that environmental programs should not have the main responsibility for developing social capital in a region.

Australia’s environmental programs have also emphasised the development of human capital (Robins and Dovers 2007), in the hope that this will lead to greater success in subsequent projects. Examples may include skills at organising projects, knowledge and skills for implementing specific environmental works and local knowledge of environmental threats. For these types of benefits, it does not appear likely that the gains per dollar invested will be larger if there is broader participation. Indeed, development of local knowledge and skills might be highly targeted to priority regions or groups affecting priority assets. Thus, unlike social capital, enhancement of human capital seems to provide no rationale for favouring broadly participatory projects relative to targeted projects.

(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. Panel (a) illustrates diminishing marginal environmental benefits with increasing budget level per participant. For example, it may be possible to change land use at low marginal cost on a small scale, but at higher marginal cost for larger scale changes (e.g. Bathgate and Pannell 2002), or to cut back input levels with low costs for small cuts but increasing marginal costs for larger cuts (e.g. Cerrato and Blackmer 1990). If this is generally true for all landholders, then there is some incentive to share the program budget more equally among all landholders, rather than giving most to a few projects. If landholders and land holdings are generally similar and equally able to generate environmental benefits (an unlikely scenario – see section (e)) then those benefits would be maximised by sharing the budget equally among all landholders. The reason is that well-funded projects would be operating on the flat part of the curve, whereas poorly funded projects would be on the steep part of the curve, so that there would be opportunities to increase environmental benefits by moving funds from the former to the latter.

 

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, neither targeted more broadly participatory projects would be 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. If the total budget is relatively low, such that sharing it equally among landholders would place them in the flat section of the left half of the graph, then the best allocation of program funds would involve a degree of targeting, in order to make some projects large enough that they would be positioned on the steeper part of the graph. Funding fewer landholders to a higher average level would mean that aggregate benefits would be increased. In other words, it would be better to fund fewer landholders to a level that took them above the threshold level. In the Australian context, this type of relationship is likely to be relevant, for example, to mitigation of dryland salinity where there are intermediate-to-regional-scale groundwater flow systems (George et al. 2001).

In summary, if the environmental issue requires only small-scale inexpensive change to generate most of the environmental benefits, this favours a strategy of broad participation. If it requires relatively large scale, expensive changes on each property, this favours a targeted approach to funding. If the benefits per dollar of funding are the same at different levels of funding, neither strategy is particularly favoured.

(d) Leverage

Landholders may choose to provide more environmental services than they are obliged to, as a contribution to the program. This may be motivated by altruism, by attempts to satisfy social norms, or by private benefits from improving environmental conditions on their own properties. If these voluntary contributions occur irrespective of the level of program funding then their only influence on the optimal allocation of funding may be indirect, by providing some or all of a threshold level of activity in cases where Panel (c) of Figure 1 applies.

If the voluntary contributions are positively related to funding from the program (e.g. they provide resources to match the public contribution), the effect on optimal funding allocations depends on which panel of Figure 1 applies. Panel (a): broad participation further favoured; Panel (b): no effect on the merits of broad participation versus targeting; Panel (c): targeting favoured up to the point where budgets for participating landholders reach the point of inflection.

In some situations, leverage may be negative, with program funds "crowding out" voluntary contributions, at least to some extent (Frey 1997; Bowles 2008). The influence of this on the optimal funding allocation depends on the details of the case, but it appears more likely to favour targeting, since a targeted approach involves fewer landholders having their voluntary contributions crowded out.

(e) Heterogeneity

The benefits of a public environmental investment are sensitive to many factors, including: the value of the environmental assets affected by the investment; 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 (Yang et al. 2005; Newburn et al. 2006). This is probably the strongest single reason for or against either of the investment strategies.

One tool to prioritise investments while accounting for heterogeneity is to use a conservation tender or auction. For example, Stoneham et al. (2003) demonstrate that bids from farmers in a tender to enhance biodiversity deliver a very wide range of environmental benefits per dollar invested, highlighting the potential benefits of targeting investment. Alternatively, integrated analysis of various types can be used to evaluate the environmental benefits per dollar invested (e.g. Ridley and Pannell 2005).

(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. In any case, Arrow and Lind (1970) argued that risk aversion should generally not be considered when selecting public investments (unless they are exceptionally large) because, across the whole portfolio of public investments, risks are likely to be uncorrelated and so, in a sense, cancel each other out. Thus, risks are relevant to the extent that they affect the expected value of net benefits but not because of their impacts on the variance of net benefits. In this light, consideration of risk may favour a targeted approach ahead of broad participation. A high probability of success is relevant, but diversification of risk by including many landholders is not.

(g) Information

A strategy of targeted investment has high information requirements which contribute to transaction costs. For each candidate project, decision makers ideally should consider information about each of the factors discussed in section (d) "Heterogeneity" (asset value, threat, technical feasibility, etc.). The high transaction costs from information collection and analysis would tend to reduce the net benefits of a targeted approach.

On the other hand, Pannell (2009) shows that using the relevant information to target investment is likely to provide substantial improvements in outcomes. Although information cost can be high, it seems very likely that the cost of a sensible information collection strategy would be easily outweighed by increased benefits from targeting.

Another aspect of information is the process of monitoring projects so as to learn and adapt program management. For programs aimed at broad participation, information that allows better targeting of future projects is not relevant, unless a decision is made to change to a targeted strategy. In general, monitoring, evaluation and adaptive management are likely to deliver greater dynamic improvements in a targeted program then in an untargeted program. The option to alter targets provides an opportunity to generate additional benefits from monitoring.

(h) Transaction costs and administration costs

Both strategies would generate transaction costs for:

• information collection

• enforcement

• engagement

• administration

• communications, and

• evaluation.

As noted earlier, a targeted strategy requires an investment in information collection and analysis to identify target investments. A targeted strategy that does not invest sufficiently in analysis to choose targets would offer little or no benefits over an untargeted strategy (Pannell 2009). Arguably, the Caring for our Country program in Australia is an example of this – it does specify targets, but they were selected using relatively simple and partial analysis. A broad participatory approach would have less transaction costs for investment analysis.

On the other hand a targeted approach is likely to have relatively low costs of enforcement (assuming that there is enforcement) and for engagement with participants. Indeed, for some participatory projects, most of the program budget is spent on communications and engagement to encourage “capacity building” (Robins and Dovers 2007). Targeted projects are more likely to have funds available for on-ground works.

When it comes to evaluation of projects, it is likely to be much easier (and therefore lower in transaction costs) for targeted projects . Broadly participatory projects may undergo very weak evaluation, based on activities and outputs rather than outcomes, because the latter is so much more difficult to discern in an untargeted project. Such weak evaluations do not provide the information needed for effective adaptive management.

(i) Government failure

As noted earlier, 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. Pannell (2009) shows that the benefits of targeting are sensitive to the methods used to select targets – in particular, the design of the metric used to rank competing projects. In practice, most government programs use poor ranking metrics, omitting key variables, and combining variables inappropriately (e.g. adding them when they should be multiplied) so that the benefits for targeting fall far short of their potential. Nevertheless, they probably do still generate some modest benefits from targeting.

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

One view related to equity that is often expressed in relation to the selection of a project funding strategy is 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 narrow and particular views of fairness or equity that neglect other relevant considerations. For example, broadly participatory projects must spread the available funds thinly across many landholders, so that the funding available for any one landholder is small. The result is that participating landholders who implement works are required to bear a large proportion of the costs. Depending on whether a polluter-pays or beneficiary-pays approach is preferred, this might be considered fair or unfair. Further, unless the practices being promoted to landholders are actually in their interests to adopt, it is unlikely that provision of encouragement or small amounts of funding support would be sufficient to prompt their adoption on the required scale (unless that scale is very small). In other words, the project would not be effective, raising the question of whether it is “fair” to take funds from taxpayers to put into a project that does not achieve worthwhile outcomes.

This highlights that there are various aspects of equity that might be relevant to the selection of a funding strategy. Schilizzi and Black (2009) note that 12 distinct equity principles have been identified by past research, including equality, ability to pay, consensus and Pareto compensation. Research shows that all 12 principles matter to people, so any argument that focuses on a single equity principle will fail to adequately capture community concerns. In the absence of any analysis of the equity consequences of targeted and participatory approaches, there does not appear to be a clear reason to prefer one or the other on an equity basis. Each may be favoured by different equity principles, and the relative importance of those principles to the community is an empirical question that has not been examined in this context.

(k) Politics

Considering the political benefits and costs of the two strategies, it seems likely that broad participation would be favoured for a particular constituency in the short term, while a targeted approach would be favoured by a different constituency in the long term. 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. On the other hand, politicians with more focus on the urban constituency may favour a targeted approach, given the greater likelihood in many cases that it would deliver substantial and measurable environmental benefits. The lack of achievement of environmental outcomes from programs with a focus on participation led to strongly critical public reports by the Australian National Audit Office (e.g., Auditor General, 2008). It appears that this contributed to a shift to more targeted investment in the subsequent program, Caring for our Country.

Discussion

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.

Issue Strategy favoured
Adoptability of works Broad if required management changes are highly adoptable, targeted otherwise
Social or human capital Broad 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)
Leverage Broad if positive leverage, targeted if crowding out
Heterogeneity Targeted very strongly favoured
Risk Targeted moderately favoured by selection of low-risk projects
Information Targeted
Transaction costs Targeted, due to high transaction costs of engagement under broad
Government failure Reduces the benefits of targeted
Equity Neither
Politics Broad 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.

In practice, it is not possible for every potential project to be subjected to detailed analysis, as the cost of doing this would be prohibitive. Hence, a simplified assessment process should be applied to reduce the number of projects being considered to a manageable number, which are then subjected to a detailed assessment before final approval. Of course the use of a simplified first phase of analysis will not necessarily result in the best possible projects being funded, but it should ensure that the benefits of targeting easily outweigh the costs, provided that the second phase of analysis is rigorous.

This paper has implications for government environmental programs that aim to generate environmental benefits. It suggests that the balance of effort should lean more towards targeted investment than towards encouraging broad participation of landholders regardless of their location in the landscape. Over the past two decades in Australia, given the focus on broad participation in national environmental programs, there has developed a belief by many stakeholders that broad participation is essential in order to maximise environmental benefits. For change in this belief to occur, there need to be supportive institutional arrangements in place, rewarding those project proponents who do adopt a more targeted approach based on sound analysis.

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Citation: Pannell, D.J. (2010). Broad participation versus targeted investment in environmental programs, INFFER Working Paper 1002, University of Western Australia. http://dpannell.fnas.uwa.edu.au/dp1002.htm


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