Question

In what ways can economic incentives and cost/benefit analysis be used to strengthen existing policies? What concerns might there be in utilizing such approaches?

Answer 1

1. Generally, economists use two approaches to solve any issues with the existing or the upcoming policies. One approach is traditional approach commonly known as Command and Control approach and other approach is Incentive or Market based approach.

2. These economics incentive policies are widely being used to solve various environmental issues like changes in the climate and pollutant aspects.

3. With this Incentive or Market based approach private sectors reduce the release of harmful pollutants into the environment as long as it's credible to do so for them in the market.

4. Coming to Cost-Benefit analysis, just the availability of data and tools to analyze things is not enough to form a sound tax incentive program.

5. Critical thinking and professional integrity will definitely play a key role in assessing and forming a sound tax incentive policy through Cost-Benefit analysis.

6. Emission Reduction Credits, Capped Allowance Systems are examples of incentives and sometime the economic incentive programs both approaches together mentioned in point 1 can be combined to form as Hybrid Programs.

7. So concluding with the points mentioned above, both with the help of Economic incentives and Cost-Benefit analysis, ways can be sorted out in order to strengthen existing policies. This might be be also strengthened by the policymakers. Different instruments can be used which have different distributional and equity values which affects Cost and Benefit analysis where care must be taken.