dnpa - payment for public goods - efncp · 2019. 2. 19. · title: microsoft powerpoint - dnpa -...
TRANSCRIPT
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How might we value & pay
for public goods
DNPA Workshop, February 2019
Prof Brett Day
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‘Public money for public goods!’ Scheme design
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Types of ‘goods’
Private Public
Have to pay to acquire and
benefits enjoyed only by owner.
Available to everyone and they
don’t have to pay for it.
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Providing Public goods
Costly changes
on farmPublic Good Beneficiaries
Social
Value
yes
no
i = 1
£WTPi
N
£0
Is social value greater than cost?
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What you do matters …
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Where you do it matters …
Barnstaple
Exeter
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Calculating values …
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ORVal
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NEV Model Suite
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NEVO
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Principal
Agents
Incentives
Designing Schemes
Principal-Agent Problems
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Getting Incentives Right
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Pitsford
Alton
Grafham
Ardleigh
Ravensthorpe
… very small quantity breaks
standard
… new substitute pesticide more
costly
… farmer access, trust, moral
hazard
… actual pesticide use
unobservable
… uncertainty over substitute
efficacy
Design considerations:
… some farmers already organic
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Product
Substitution
Payment
Discretionary
Top-Up
Payment
Uncertainty
Participation
Payment
Cost of
switching
Catchment
Performance
Bonus
Trust & Pre-
commitment
Asymmetric
Information
Scheme Design
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2014 2016
Scheme Design
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Things to think about
1. Defining the scheme:
Objectives and
constraints
2. Designing the contracts:
What to pay for
3. Allocating the contracts:
Who to pay and how much
4. Implementing the scheme:
Monitoring and enforcing
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Designing Contracts: What to pay for
Activity Outcome
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Designing Contracts: Activity or Outcome?
Incentives
Activity:
• Do the activity … and no more
• Low cost activity ≠ high benefits
• Pay even if low actual benefits
Outcome:
• Encourages doing more
• Encourages innovation
• Only pay for actual benefits
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Designing Contracts: Activity or Outcome?
Activity:
• When ‘scientists’ know best
what delivers outcome
Outcome:
• When farmers know best
what delivers outcome
Knowledge
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Designing Contracts: Activity or Outcome?
Activity:
• Assets or land use easy to
verify
• Operational activity hard to
measure
Outcome:
• When & where? Varies over space
& time
• What Scale? Farm, catchment,
landscape?
• Who is responsible?
Measurability
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Designing Contracts: Activity or Outcome?
Activity:
• Unexpected costs
Outcome:
• Unexpected costs
• Other farmers’ activities
• Environmental factors
Risk
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Designing Contracts: Activity or Outcome?
Activity:
• Poor outcome risk falls
on purchaser
Outcome:
• Poor outcome risk falls
on farmer
Risk-Sharing
• Reward effort and
performance
• Activity fee and
performance bonus
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Allocating Contracts: Who & how much?
• Posted Prices
• Competitive Tender
• Negotiation
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Allocating Contracts: Negotiation
• Targeting particular
farms
• Special circumstances
• Strength of negotiating
position
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Allocating Contracts: Posted Prices
• Prescribe activities or
performance
• Farmers choose whether
to participate at posted
price
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Allocating Contracts: Auctions
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• Online bidding platform
• Calculates N from each project
• Bids as £ per tonne of N
• Lowest cost bids win
• Can update bid
Need to offset 40
tonnes of N each year
Pay farmers to plant cover
crops
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Need to offset 40
tonnes of N each year
• Different payments
for same thing
• Cunning farmers
sneak in last min bids
New Design:
• Open with a high price
• ‘Yes’ or ‘No’ or ‘Best bid’
• Too much demand … drop price
• Everyone paid the same
• No opportunity for sneaky bidding
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• Daily operational decisions make a difference
• Contribution of each farmer unobservable
Dartmoor
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• Objectives:
o Clear and measurable outcomes by which to judge success
o Consider potential perverse incentives
o Outcomes should relate to public good delivery
o Measure of outcome agreed across all parties … and
verifiable
Dartmoor
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• Incentives:
Dartmoor Participation Payment:
o Align interests of farmers
Outcome Payment:
o Bonus on group achievement
payable to each individual
o Everyone gains/loses bonus
for exceedance/short fall
Activity Payment:
o Payment for measurable
activities correlated with
positive outcome
o Perverse-incentives
Individual Monitoring:
o Guarantee bonus if agree to
individual monitoring
Risk-Sharing:
o Activity payment with
outcome bonus
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