A presentation made to policy makers.

1. REMOVAL OF PERVERSE ECONOMIC
INCENTIVES TO CONSERVE
BIODIVERSITY
 Introduction
– Economics: Human behavior and loss of
biodiversity
– Markets: Prices influencing human behavior
– Policies: A tool to correct market failure viz:
intra and intergenerational, ethnic, gender
equity etc.
– Policies intended to be beneficial to one
sector may be perverse to another
(biodiversity)
– What are those policies and how could such
be removed?

2. CONCEPTS AND DEFINITIONS
 A perverse incentive is a POLICY or PRACTICE
that encourages either directly or indirectly,
resource uses leading to degradation of bio-
diversity, such as:
– Environmentally harmful subsidies
– Persistence of environmental externalities
(shall not be considered)
– Laws and customary practices governing
resource use.
Removal of biodiversity perverse subsidy
could save biodiversity directly and financial
savings could be used to invest to save
biodiversity.

3. POLICY AND PRACTICES
 Policy refer to the combination of a set of
operational targets and related set of legal,
administrative and/or economic tools that are
implemented by government to attain a set of
objectives.
 Practices refer to activities undertaken by
individuals, companies and governments that
are based on customary law, social norms or
cultural traditions.
 Empirical information on adverse impact of
practices on biodiversity is scarce.
 Policy is relatively easy to change than
practices.

4. TAXONOMY OF SUBSIDIES
– Direct subsidies: grants payments to
consumers or producers
– Tax policies: exemptions, deductions,
preferential etc.
– Public provision of goods and services
below cost
– Domestic orientation of markets: price
regulation, quantity controls,
government procurement

5. GUIDANCE TO REMOVE OR
MITIGATE PERVERSE INCENTIVES
 “While there are large number of
analytical contributions on the role of
specific policies and practices in
generating environmentally perverse
incentives, especial on environmentally
perverse subsidies, practical proposals
on how to remove or reform such
policies and practices are scarce.”

6. HOW TO REMOVE PERVERSE
INCENTIVES
 1. Identify policies and practices that
generate perverse incentives
 2. Design and implement appropriate
reform policies
 3. Enforce, monitor and evaluate reform
policies.

7. IDENTIFICATION OF POLICIES AND
PRACTICES THAT GENERATE
PERVERSE INCENTIVES:
PRINCIPLES
 Analyze underlying causes of biodiversity
loss in light of perverse incentives
 Identify the perverse incentives if any
 Quantify perverse impacts and thereby
priorities policies and practices
 Identify cost and benefits of removal or
mitigation (include all relevant cost and
benefits)
 Identify obstacles to policy reform:
distributional, entrenched interest groups,
cultural traditions, international pressure,

8. IDENTIFICATION OF POLICIES AND
PRACTICES THAT GENRATE
PERVERSE INCENTIVES: WAYS AND
MEANS
 Strategic Environmental Assessment
 Maintain transparency
 Involve stake holders
 Build capacity on conducting SEA

9. DESIGN AND IMPLEMENTATION OF
REFORM POLICIES: CHOICE OF
POLICIES
 Options available
– Removal of policy or practice when
policy is no longer valid or where the
damage on bio diversity is higher than
other benefits.
– Remove and replace with another
policy or practice that is not harmful to
bio diversity but achieves other
objectives: Re-instrumentation.
– Introduce new policy to overcome
perverse incentives of the existing
policy.

10. DESIGN AND IMPLEMENTATION OF
REFORM POLICIES:WAYS AND
MEANS
 Regulation to to mitigate adverse
impacts of policy and practices
 Compensation to those adversely
effected b reform of policy and practice

11. MONITORING, ENFORCEMENT AND
EVALUATION OF REFORM
 Capacity building
 Indicators and information systems
 Stake holder involvement
 Transparency