Designing Market Based Instruments: Beyond Round One of the Australian MBI Pilot Program

Most markets have evolved as buyers and sellers constantly search for ways to create value, however this has not occurred naturally in all areas of the economy markets are missing for some goods, including the environment. In such cases, transaction costs linked to property rights, asymmetric and hidden information and packaging problems have often prevented otherwise valuable deals from being negotiated in relation to the environment. However new capabilities and a better knowledge and understanding of the problems at hand now mean that where the objective is clear, and the knowledge, skills and capability exist to understand, model and measure the relevant characteristics of the problem transaction costs are low enough that economists can, in certain cases, design market based instruments that match demand with supply. In general the findings from the National MBI Pilot Program indicate that cap-and-trade systems, auctions and offsets systems can be effective tools to achieve natural resource management. The type of mechanism that is appropriate in a particular circumstance will depend on the transaction costs involved, which are strongly influenced by the features of the problem at hand. Mechanisms therefore require careful design to ensure they are tailored to each particular case.Transaction Costs, Property Rights, Asymmetric and Private Information, Public Goods, Government Policy, Marketing,

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Designing Frameworks to Deliver Unknown Information to Support MBIs

This paper reports on a Catchment Modelling Framework (CMF) designed to support an Australian pilot of an auction for multiple environmental outcomes EcoTender. The CMF is used to estimate multiple environmental outcomes including carbon, terrestrial biodiversity, aquatic function (water quality and quantity) and saline land area. This information was previously unavailable for application to environmental markets. This is the first time a market-based policy has been fully integrated from desk to field with a Catchment Modelling Framework for the purchase of multiple outcomes. This framework solves the unknown information problem of linking paddock scale landuse and management to catchment-scale environmental outcomes. The framework provides the Victorian government with a replicable transparent evidence-based approach to the procurement of environment outcomes.Research Methods/ Statistical Methods,

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Teaching/Communication/Extension/Profession,

Designing Market Based Instruments: Beyond Round One of the Australian MBI Pilot Program

Most markets have evolved as buyers and sellers constantly search for ways to create value, however this has not occurred naturally in all areas of the economy - markets are missing for some goods, including the environment. In such cases, transaction costs linked to property rights, asymmetric and hidden information and packaging problems have often prevented otherwise valuable deals from being negotiated in relation to the environment. However new capabilities and a better knowledge and understanding of the problems at hand now mean that where the objective is clear, and the knowledge, skills and capability exist to understand, model and measure the relevant characteristics of the problem transaction costs are low enough that economists can, in certain cases, design market based instruments that match demand with supply. In general the findings from the National MBI Pilot Program indicate that cap-and-trade systems, auctions and offsets systems can be effective tools to achieve natural resource management. The type of mechanism that is appropriate in a particular circumstance will depend on the transaction costs involved, which are strongly influenced by the features of the problem at hand. Mechanisms therefore require careful design to ensure they are tailored to each particular case