Public: Private Benefits Framework: Frequently Asked Questions

David J Pannell


If you have further questions about the framework, email them to me (david.pannell@uwa.edu.au).

 

Why does the zero-zero point represent current practice?

Because the framework is designed to assess projects that seek to move people away from current practice. By setting the zero-zero point to current practice, we can see whether the individuals involved will be made better or worse off by the project, and whether the rest of the community will be made better or worse off.

What if current practice is causing negative externalities (e.g. degrading the environment)? What if it is causing positive externalities (e.g. improving the environment)? How can they both be at the zero-zero point?

They can. No matter how good or bad current practice is, it is possible to look at changes in management that make things better or worse. By defining zero-zero as current practice, it becomes obvious whether a project makes things better or worse based on its location on the graph. If the current land use is very bad for the environment, there will probably be projects available in the top half of the graph, yielding positive public net benefits. If the current land use is about as good for the environment as possible, there won't be any changes that can make things better, and so there won't be any projects in the top half of the graph.

How does the framework deal with "duty of care"?

"Duty of care" means that there are expectations and requirements of people to meet minimum standards of behavour or management. If duty of care is actually enforced (it often isn't) then the zero-zero point would correspond to duty of care. After all, current practice will become equivalent to duty of care. If duty of care is not enforced, the zero-zero point is current practice (however good or bad that is). Then the framework will indicate whether duty of care should be enforced, and if so how.

How does one estimate public net benefits?

The framework requires an assessment of the public net benefits of a project, not the public net benefits of the environmental asset in question. For an environmental project, estimating public net benefits has at least three components: the value or significant of the environmental asset, the level of threat or damage to that asset, and the technical feasibility of reducing that threat or damage. Ignore the adoptability of works and the cost of the works (at this stage).  Assume that the works will be implemented, and estimate the public impacts of that happening. You could potentially do this in great detail and come up with an actual dollar value, or you could use the framework as a more general guide and just attempt to assess the benefits on a scale from very negative to very positive.

One element of public net benefits is the value or significance of the asset. Given that environmental funds are very small relative to the problems that exist, really great precision in valuing the assets is usually not needed. All we really need to know is whether an asset falls into the "exceptional significance" group. Beyond that, its priority will depend on the other criteria (degree of threat or damage, feasibility of protection). "High significance" or even "Moderate significance" may be sufficient for an asset if it is exceptionally promising on the other criteria. For example, an asset may be of only moderate significance, but it may be highly feasible and inexpensive to protect or enhance it.

Estimation of asset significance may involve a combination of:

·        assessments by experts from government agencies (e.g. scientific assessments, national or international reports or lists)

·        assessments by community members, through participating in workshops or being otherwise consulted

·        assessments by environmental managers

Non-market valuation studies (surveys to assess the dollar value of an environmental asset) could conceivably be done as well, although that is probably not practical to do so for the large number of assets that need to be assessed.

How does one estimate private net benefits?

Private net benefits is another way of saying, the "adoptability" of the works that would be needed to achieve your goal for the asset. The adoptability of works needs to be considered carefully. Here we are concerned with estimating the aggregate level of adoption, recognising that there will be variation due to individual perceptions and circumstances. I suggest:

·        reviewing the existing literature about the farm-level economics of proposed land-management changes in the relevant areas.

·        considering the available land-management options in the light of research evidence about the adoptability of different practices (Pannell et al., 2006).

·        observing actual adoption behaviour of land managers for the relevant practices, with and without extension and/or incentive payments

·        talking to farmers and local experts

An additional option could be to conduct a conservation tender, to see how much subsidy landholders require in order to be willing to adopt a certain practice at a certain scale.

How does it handle time?

The benefits should be estimated over whatever timeframe is relevant for the investment decision. In an environmental assessment, I'd suggest you should be estimating net benefits over at least 20 years. If you were estimating them as a dollar value, you'd do it as a discounted net present value.

Do "positive incentives" equate to beneficiary-pays mechanisms (e.g. incentive payments) and "negative incentives equate to polluter-pays mechanisms (e.g. regulatory enforcement)? How does the framework handle the beneficiary-pays and polluter-pays principles?

No, the positive incentives section can use either beneficiary-pays or polluter-pays mechanisms, and the same is true of the negative incentives section. "Positive" means that you are trying to encourage change and "negative" means that you are trying to discourage change, but you can do either with carrots or sticks. In practice, in the real world, governments usually seem to use beneficiary-pays for positive incentives and polluter-pays for negative incentives, but it doesn't have to be that way.

How does the framework relate to cost sharing?

It implies a more efficient use of resources than common cost-sharing approaches. The assumption in this framework is that if you are using beneficiary-pays mechanisms, you don't pay more to people than necessary to change their behaviour. In cost sharing, people are often paid more than necessary. 

Extension is only in the north-east quadrant, but wouldn't you use extension to support the other mechanisms?

You would! Extension in the north-east quadrant indicates that extension is the primary tool used to achieve behaviour change for these projects. But it could also be used as a supporting tool in the other quadrants.

Given the definition of the "public" used in the framework, a person could be private for one project and public for another. Isn't that a problem?

No problem. The public is not a fixed defined group. I think I have defined them in the most logical way: as those people who benefit or suffer from the external effects of the works being promoted.

What if one has already selected the policy mechanism?

You could ask, which projects would be suitable for this policy mechanism?

If you've already chosen a project and already chosen a policy mechanism, there's nothing for this framework to do (other than check whether you got the policy mechanism wrong).

What if the desired treatments don't require changes in private behaviour or management?

Then you don't need this framework. Just use a standard benefit:cost analysis framework.

How should we treat the costs of implementing the program?

In positioning a project against the two axes, you completely ignore implementation costs. Implementation costs move the boundaries of the recommended areas, but they do not move the positions of projects. For example, part of the reason why the boundary lines are in different positions in the more complex version of the framework (Figure 2) relative to the simple version (Figure 1) is that Figure 2 considers implementation costs. 

 

 

Figure 1. Recommended efficient policy mechanisms based on a simple set of rules.

 

 

Figure 2. Efficient policy mechanisms for encouraging land use on private land, refined according to account for lags to adoption, learning costs, the fact that extension reduces but does not eliminate lags to adoption, the transaction costs of extension, and assuming that managers require BCR > 2. A much smaller number of projects would qualify for incentives or extension in this more targeted approach, relative to Figure 1.

 

 

In the simple version of the framework (Figure 1) there are no numbers marked on the axes, but in the more complex version (Figure 2), there are. Why is that?

Once we bring in the additional complexities (like time lags to adoption, the relationship between adoption lags and private net benefits, the partial effectiveness of extension in reducing those time lags, transaction costs) we have to make specific assumptions about them, which can best be expressed in dollar terms. We didn't have to make those specific assumptions in the simple version. 

If the positive incentives encourage change and negative incentives inhibit change, how does a pollution tax that aims to encourage change fit in? We might want to target an activity with a net private benefit (e.g. it is cheaper to dump waste in nearby creek that to dispose of it properly) but with higher public net costs, which implies it's in sector D where the negative incentives sit. But we want to encourage change (stop dumping waste!) rather than inhibit it, so how does this fit in with the definitions of a negative incentive as something that inhibits change?

First, be clear that a polluter pays is not synonymous with a negative incentive. A negative incentive can be either polluter pays or beneficiary pays. So a negative incentive could be a pollution tax or an incentive payment changing. Conversely, a pollution tax can be used to either encourage change (positive incentives) or discourage change (negative incentives). The next thing to be clear about is, what is the current practice? This defines the zero-zero point in the graph. If the current practice is to dump waste in the creek, then you are trying to change behaviour in a positive way. The change away from current practice (towards less dumping) would generate positive public benefits, so you are potentially talking about positive incentives. If the current practice is not to dump waste in the creek, but you’re aim is to stop people from moving in that direction, then the change away from current practice (to more dumping) would generate negative public benefits, and you are potentially talking about negative incentives.

 

Citation: Pannell, D.J. (2008). Public: private benefits framework: frequently asked questions,  URL: dpannell.fnas.uwa.edu.au/ppf-faq.htm

Public: private benefits framework web page.


Copyright © David J. Pannell, 2008
Last revised: June 16, 2013.