4.4 Conclusions
The challenge that sustainable development poses for policy is somewhat different to many other policy problems. Governance is important to achieving the outcomes of sustainable development because it provides both structure and incentives. Section 3 provided a framework for linking institutions with spatial and intertemporal patterns of resource use, economic growth, and the maintenance of natural capital. Virtually every discussion on sustainability concludes that existing institutions are part of the problem and reform is required.
Meeting the challenge of sustainable development requires clear processes for identifying and integrating economic and environmental goals and efficiently implementing the goals at all levels of responsibility. This is consistent with the focus that sustainable development has on intertemporal welfare. It was argued above that it is not possible to provide an optimisation plan for achieving the goals of sustainable development. Policies are typically crosscutting where the particular issue will span the domain of several ministries and yet no one ministry is responsible for sustainable development.
Deciding whether to locate specific instrument choice at central or regional/local levels is an empirical issue. In some situations central control might be appropriate, in other cases control might be better located at the local level. In general, unless the externality is truly national (eg, global climate change) then a “one size fits all” is highly unlikely to be consistent with the principles of sustainable development. Efficiency gains can accrue from devolution that enables instrument choice to explicitly take into account heterogeneity in community preferences and ecosystems. In some situations, there may be benefits in having regulatory power concentrated at the central level of government when there are powerful commercial interests. On the other hand, devolving decision making down to local units of government gives local interest groups relatively more focussed power because of reduced heterogeneity of preferences. In the presence of uncertainty, it may be appropriate to allow lower-level regulators to attempt different approaches to common problems. A higher-level government could set broad parameters that limit the scope of experimentation. The potential for economies of scale and comparative advantage should be considered in the design of environmental governance. Comparative advantage calls for different levels of government to specialise in different tasks.
Adverse selection and moral hazard should be considered when assessing the relative merits of devolution. When it comes to managing externalities and promoting sustainable development we cannot assume complete contracts. In part, this is because the current government is not typically bound by the decisions of earlier government. It also arises because of myopia and the likelihood of temporally inconsistent patterns of resource use. In this situation the allocation of rights – vertically and horizontally – within the architecture of governance is probably a more realistic view of government.
Thus, the issue is who has the rights – if at all – to implement MBIs. Sustainable development is characterised by crosscutting issues – the economy-environment linkage is obvious. This of course raises the issue of policy integration and coordination. Coordination horizontally and vertically degrades incentive intensity and adds to bureaucratic costs. One case study in Section 5 will highlight this difficulty.
Incentives for achieving sustainable development should be related to agency missions. As noted in my earlier report, sustainable development policy may have multiple goals that may make it difficult to appropriately incentivise administrators (Sharp, 2001). Difficulties with measuring the productivity of agents may result in low powered incentives to efficiently achieve sustainable development outcomes.
Optimal institutional design, especially within the context of sustainable development, is beyond the reach of economic theory. As a rough guideline, policy should add value to the economy, policy should not be too prescriptive and policy instruments should lay foundations that recognise heterogeneity, provide scope for individuals to adjust according to their circumstances and flexible enough to incorporate dynamic adjustments. Policy should be performance based, implementation transparent and agencies accountable. Policy should be clear, concise, enforceable, offer low probability of regulatory capture and result in low compliance costs.
