Non-point Source Pollution Control

The focus of this research is the application of experimental economic laboratory methods to the evaluation of alternative policies/institutions for non-point source pollution control. We are particularly interested in the design of non-point tradable emissions permit institutions that adequately capture the interdependencies between non-point information problems.

Background

Non-point source pollution is an environmental externality which is characterised by interdependent information problems. These problems include moral hazard, adverse selection, stochastic environmental effects, and imperfect knowledge about pollutant generation, transport, and fate. Studies undertaken in Australia suggest pollution from non-point sources are a major source of water quality impairment and an important contributor to observed declines in ecosystem health (see for example the National Land and Water Resources Audit (2001); the Productivity Commission's report on Industries in the Great Barrier Reef Catchment and Measures to Address Declining Water Quality (2003); and the South East Queensland Water Quality Management Strategy (2000)).

Information problems have complicated the design and application of environmental policies for non-point source pollution control. Historically, regulatory and voluntary approaches have been the most common type of non-point policies, however these policies have met with limited success. More recently increasing interest is being shown towards the use of market-based instruments (MBIs) such as taxes/subsidies and tradable emissions permit schemes. MBI's have the advantage of providing flexibility to individual landholders and industries in achieving water quality targets by taking advantage of the inherent differences in the production characteristics of firms. Properly designed economic incentives are often more cost-effective than traditional regulatory approaches, not only by providing incentives for firms to undertake pollution abatement, but also by encouraging technological innovation, reducing compliance costs for firms, and promoting improved social welfare. The application of economic incentives such as water pollution credit trading markets to achieve water quality targets is widely practiced overseas, particularly in the United States. Despite the increased acceptance of economic incentives for managing water extraction and allocation in Australia, their application to water quality management is in its infancy with a strong emphasis here on 'command-and-control' regulation.

Our Research

Institutional testing is carried out both in the laboratory with university students and in the field with agricultural enterprises (non-point firms). Our research aims to evaluate the non-point institutional designs in both repeated static and dynamic experiments.

Institutional variables being evaluated include:

• non-point production and abatement uncertainty;
• Temporary and permanent permits;
• Permit banking/borrowing;
• Effect of trading ratios;
• Transaction costs;
• Compliance mechanisms;
• Third party traders.

Research Outcomes

• Design of alternative non-point tradable emissions permit schemes;
• Evaluation of the economic and environmental performance of alternative non-point trading schemes;
• Identification of barriers and impediments to non-point trading scheme performance.

Water Markets

The focus of this research is the application of experimental economic laboratory methods to the evaluation of alternative water market institutions.

Background

In many areas, the economic, practical, and environmentally sustainable extent of water harvesting has now been reached. In the Murray-Darling, for instance, a 'cap' on further water diversions has been imposed. Under COAG policy [Sect. 2.5], further economic development (while protecting environmental values) will require that better use be made of water already being harvested. This entails a basin-wide view for hydrologic assessment, consideration of supply uncertainty, a redefinition of water entitlements (allowing for transfers through trading), and an allocation for environmental flows. Many hydrologic issues need to be resolved before managers can be confident that the current allocation/trading system is sustainable.

Our Research

This project provides fundamental insights into the behaviour of water markets that will bound water allocation scenarios to be modelled. There is strong demand within the water industry for this kind of data. Institutional testing is carried out both in the laboratory with university students and in the field with agricultural enterprises (nonpoint firms).

Research Outcomes

• A sound hydrologic foundation for a sustainable property rights/water trading framework;
• Increased efficiency of operation using meteorological and hydrologic forecasts;
• Increased efficiency of water delivery;
• On adoption, more profitable irrigated agriculture, more certain environmental allocations.
  
  
  

Research Affiliations

Australian Rivers Institute

The Australian Rivers Institute (ARI) was established by Griffith University in 2006 to provide a focus for Australia's largest group of university-based scientists with expertise in river, catchment, and coastal research and education, and builds on the University's long-standing reputation in environmental science.

ARI is committed to promoting a "whole-of-water-cycle" water catchment and river-coastal linkage management philosophy and, through providing easier access to a co-ordinated skills base, enhancing capacity building initiatives in Australia and across the Asia-Pacific region.

Fishery Management

The focus of this research is the application of experimental economic laboratory methods to the evaluation of fishery management options.

Background

In many areas, the economic, practical, and environmentally sustainable extent of fisheries have now been reached. Fishery managers are looking for new ways to manage the common pool resource. In doing so they are exploring the use of individual tradeable quota, setting maximum economic yields and the performance of input and output based quotas.

Our Research

This project provides fundamental insights into the behaviour of fishers under alternative institutional arrnagement within a fishery. The research compares regulatory instruments with notions of social contracts. Institutional testing is carried out both in the laboratory with university students and in the field with members of the fishing industry.

Ecosystem Services

The ecosystem services concept has arisen as a way in which to encourage the discussion of the dependence of humans on nature (Cork et al. 2001). Ecosystem services have been defined by the Millennium Ecosystem Assessment (2003) as the benefits people obtain from ecosystems. Examples of ecosystem services include nutrient cycling, filtration, and provision of habitat. Ecosystem services are often characterised by their public good nature, and as such, markets for them rarely exist. Experimental economics can be used to explore the possibilites of using market-based instruments as a means to ensure the provision of ecosystem services.

Climate Change

Research Affiliations

Atmospheric Environment Research Centre

"The Atmospheric Environment Research Centre was established by Griffith University in 2006 to provide a focus for Australia's largest group of university-based scientists with expertise in atmospheric research and education, and builds on the University's long-standing reputation in environmental science.

Our research program adopts an inter-disciplinary ‘whole-of-system’ approach to the complex processes that underpin the atmospheric environment, and in particular the important role of aerosols in the environment."

TESS - The Experimental Software System

TESS is a software platform developed by Professor Tisdell and a consulting programmer for conducting various economic experiments. This software is suitable for use in the following types of experiments:

• Individual decision-making experiments;
• Public good, externality, and voting experiments;
• Closed and open call auction experiments;
• Single and multiple unit double auction experiments.

zTree - Toolbox for Readymade Economic Experiments

Ztree has been developed by Urs Fischbacher at the University of Zurich (Fischbacher, 1999). This software is suitable for use in the following types of experiments:

• Public good experiments;
• Common-pool resource experiments;
• Individual decision-making experiments;
• Single-unit double auction experiments.

  Additional information about zTree is available from the University of Zurich website

  Reference

  Fischbacher, Urs (1999): z-Tree. Toolbox for Readymade Economic Experiments, IEW Working paper 21, University of Zurich.