2003 Reports

Environmental Policy Instruments in Developing Countries

Somanathan, J. E.; Stemer, T.

Developing countries face a wide range of environmental and resource problems including many already solved in industrialised countries. Since agriculture, forestry, and fisheries constitute a much larger part of the economy in these countries and the poor are disproportionately concentrated in these sectors, problems of resource depletion such as inappropriate allocation of surface water, soil erosion and deforestation are all very important. Indoor air pollution related to heating and cooking as well as waterborne diseases associated with unsafe water and sanitation are leading causes of death. The persistence of these problems in developing countries is related to a number of key factors discussed in this paper and generally related, in some way, to the failure of public good provision. Direct examples include the failure to provide public services such as clean water. The provision of adequate information, for instance concerning the health effects of unsafe water or indoor air pollution, is also a significant public good. Indirect examples include the failure to provide adequate information and institutions such as good access to courts, or incomplete property rights. The lack of secure rights inhibits necessary investments in maintaining or developing sensitive resources such as irrigation systems or common pool resources, grazing lands, forests or coastal wetlands. We also discuss the importance of decentralisation and transparency in decision making and of due process and stakeholder participation in reform. Other factors we discuss concern risk and its relation to income distribution and heterogeneity among polluters and victims of pollution. These factors are crucial for policy instrument design. Because of poverty, efficiency is crucial in order to minimize overall costs. This speaks in favour of the use of flexibility mechanisms such as market based mechanisms. At the same time however, risk aversion, poverty and unequal distribution imply that considerable attention must be paid to the distribution of costs and to a participatory approach in policy design.