Policy perspectives on rural practice change

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

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

Practice change: Why worry?
Why not leave the whole thing up to farmers and their business advisors?

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

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

Choosing policy mechanisms Public: Private Benefits Framework

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

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

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

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

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

Simple public-private framework

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

Complex version

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

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.

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

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

http://www.ruralpracticechange.org	71
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Policy perspectives on rural practice change

by Dave Pannell on Nov 13, 2008

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Policy perspectives on rural practice change — Presentation Transcript