3 The Model
The first step in understanding how a regulatory regime will work in practice is to select a model that illustrates interactions between the various players (Figure 1). The design of this analysis has been deliberately kept simple so that the main points of interest can be drawn out through the interactions. This has been abstracted from the full detail of an environmental policy. This analysis is designed to contain just sufficient complexity to allow for the capture of the essential details of the salient issues, and give enough insight into the interrelationships between the various actors.
A model is a system of relationships which, although abstract, tries to capture the salient elements of the real world. This is simplified from reality because discussing the issues in that framework can be too complicated. Any real world problem will have a large number of variables with a large set of, often complex, relationships between them. If any advances are to be made in the analysis, it is necessary to isolate the most important aspects and disregard the rest; thereby giving an insight into the problem at hand. The potential cost of this approach, of course, is that the process of abstraction has eliminated characteristics that are vital to the full understanding of the question under discussion.
The aim of this analysis is to determine how best to achieve the stated environmental goals of government. Using this simplified framework and drawing on the "ideal" regulatory design developed above, it is possible to draw some insights using elements from institutional micro-economic theory.
Source: NZIER
Figure 1: Stylised model of institutional interactions to achieve desired goals
Figure 1 shows one way of achieving government’s desired goals through a system of institutional interactions. Key to the process are the interactions in the model between the various actors: government – local government, government – land owners, and local government – land owners. How to operationalise, motivate, and effect change between these actors is the subject of the other part of this project (see Part II). A description of the important features of the model includes:
3.1 Central government objectives
The goals (e.g. sustainability) and government policy objectives (efficiency, equity, and intergenerational issues) need to be clearly identified (see previous section). In this case it is necessary to balance shorter-term economic considerations against the ability to sustain the productivity of the land over the long term. This includes making sure that most of the benefits of any public intervention are squarely gained by the public (rather than all captured by private individuals).
In defining the desired goal central government wishes to achieve, policy makers will have to ask two questions:
- If individuals and regions are left to their own devices, how far does the outcome of their actions deviate from the desired goals?
- If this deviation is substantial, how can their actions be "corrected" to more closely approximate the desired goals?
The practical goal of any policy would be to correct any deviation so that the desired goals are met.
3.2 Interactions between stakeholders and the formation of social capital
Key to the model is the interactions between the various players that have a stake in developing a sustainable environmental policy (see Part). Policy makers need to understand farmer motivations, e.g., why should farmers be interested in making environmental policy work? What is to stop farmers just picking the eyes out of any policy devised and appropriating the private benefits and fulfilling none of the public policy objectives? What will motivate farmers to pick up while act in accordance with any policy designed, particularly in times of economic downturn? This is reinforced by the model design, which pays particular attention to the two way interactions between the parties and the need for flexibility, recognising that there may be policy alterations once the national policy has been initially implemented.
A major contributing factor could be the building up of such "social capital"4 between the various parties, since for environmental policy to work, farmers and other landholders must be motivated to act and think in an environmental sustainable way.
These formal and informal interactions will be between:
- Central government and farmers . If an environmental policy is to achieve its goals, the relationship between central government and farmers and others who own rural land is crucial. This is because central government has the responsibility to design policy that recognises the predicament that farmers are faced with (see Section 4) and understand how farmers will react when particular sets of policies are introduced. Policy will have to be flexible enough to deal with case specific issues rather than a "one size" fits all approach – since the problems faced by farmers and other land users on the East Coast of the North Island are different from those in Canterbury.
Central government has a role in building the infrastructure to persuade farmers to act in a certain way, which may involve short-term costs to farmers so that long-term sustainability of the land can be maintained – a difficult task for any policy. For this to occur, the level of understanding (and trust) will have to high between the parties. The building up of social capital has an important role to play in this process, through regular contact (through e-government initiatives, group meetings, or other cost-effective methods of contact) to build long term trust and thus easy communication. 5
- Central government, other agencies, and local government . The more co-ordinated the approach to a specific environmental policy is, the more effective any programme is likely to be. If one part of government does not "buy into" an environmental policy the impact on the ground can be damaging not only in that region but in other regions as well, since the problem "spills over" into other regions. For a co-ordinated environmental policy to work effectively there will have to be increased consultation between central and local government. Specifically this will mean setting up regular channels for information exchange and policy co-ordination.
Central government will also have to have confidence in other quasi government agencies with a part to play in developing a coherent strategy. This necessitates central government laying down clear guidelines as to the costs and benefits associated with the activities they undertake based on economic principles. For examples where this has not occurred see Clough and Nixon (1997) and Clough and Nixon (2000).
- Local government and farmers . Co-ordination, given a national strategy, between local government and farmers is also important to the policy process. All participants have to be pulling in broadly the same direction, which requires a degree of policy co-ordination at the local level to be consistent with a national strategy.
Flexibility is also an important ingredient, since policies may have unintended outcomes. This will require policy adjustment after implementation, which means that any policy will have to be flexible enough to cope with changes and still maintain a coherent structure.
3.3 Technology and weather patterns
Prevailing farming technologies and weather patterns will also need to be considered, given the huge impact they have on farming over time. Flexibility will have to be built into any long-term environmental policy, since unexpected events, improvements in technology, and random weather shocks are major determinants of success or failure of sustainable policy design.
4 Social capital is an extension of human capital. Whereas human capital is embodied in the skills and knowledge acquired by an individual, social capital is embodied in the relations among people. It is capital to the extent that it can be used for a particular purpose (Robinson, 2000).
5 The contact between central government and farmers, at present, is irregular. For a build up of social capital to occur more regular contact between central government and farmers is necessary. The Department of Conservation is the only government department with on-going regular contact with farmers, while the Ministry for the Environment and the Ministry of Agriculture and Forestry have only passing contact and are barely visible to farmers.
Contact for Enquiries
Rural Affairs Coordinator
Sector Performance Policy
MAF Policy
Ministry of Agriculture and Forestry
PO Box 2526
Wellington
NEW ZEALAND
Phone: +64 4 894 0675
Fax: +64 4 4 894 0745
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