Market-Based Policy Instruments - Essay Example

Political Science Introduction Market-based policy instruments refer to regulations that promote behavior through price signals rather than the existing explicit instructions. One of the criterions used for instrument assessment involves relative efficiency that represents the degree to which instruments maximize net benefits. However, the efficiency criterion requires knowledge of both cost and benefits abatement (Yohe, 1996). Market-based policy instruments ensure that efficiency is employed whereby costs are appropriately measured. The instruments have been employed for the purposes of altering price signals that ensure organizations face direct cost incentives for the purposes of controlling emissions. Some of the primary market-based instruments considered include taxes as well as tradable permits. In real essence, command-and-control regulations condition firms to bear responsibility on identical shares of the burden through the use of uniform standards for firms. In this case, the most common regulations are technology-based and performance-based. Such command-and-control regulations lead to freezing and development of technologies that result into greater levels of control (Mulholland, 2008). Environmental policy Market-based instruments offer potential advantages for environmental policy makers compared to traditional command-and-control approaches. Some of the advantages include cost effectiveness as well as dynamic incentives for technology innovation. Market-based instruments leads to implementation of desired level of pollution clean-up at lowest possible cost. Communities within different regions at some point experience environmental challenges depending on their sensitivity towards sustainability (Stavins, 1991; Bovenberg and de Mooij, 1994). Sustainable status is possible when the ability to maintain stocks of renewable resources is improved. The extraction level should not exceed the levels of regeneration. In most instances economic growth is dependent on sustainable development since GDP normally depends on natural capital. Decrease in the availability of resources prevents anticipated growth of various economies meaning that sustainable development is a prerequisite to economic growth. The changing interest of consumers is also one of the good indicators revealing necessity of sustainability within economic growth (Figge, 2005; Stavins, 1996). In this case, sustainability considers conditions through which countries view production and manufacturing processes in relation to products that leads to increased production based on responsibility. Organizations considers the act of being strategic towards sustainable development while at the same time making choices on lucrative processes capable of contributing positively towards more sustainable society (Jordan et al., 2003). The objective is this case is to avoid the risks associated with destruction and at the same time pursue profitable dynamics. In developed nations many dynamics affecting quality of life such as the environment are not possible to measure using market dynamics. This is since there is possibility that ensures such parameters lose value in the occurrence of economic growth. Therefore, any initiative of sustainable development should encompass the three dimensions of environmental, economic and social aspects (Pindyck, 1991; Stavins and Whitehead, 1992). There is rapid growth in environmental problems all over the world which could be attributed to rapid increase in population growth making a lot of strain within the environment as well as natural resources (Peck and Teisberg, 1993). Several domains contribute to environmental degradation some of which include; industrial pollution, deforestation, land degradation and urbanization amongst others. However, at some point there has been eminent overexploitation of the country’s resources making environmental pollution one of the biggest threats facing life on the planet earth today (Pezzey, 1992). Statistics given by World Health Organization Estimates that about two million people die every year out of air pollution besides those who suffer ailments and diseases caused by the same. The twentieth and twenty first centuries recorded considerable growth in environmental degradation activities (Figge, 2005). Environmental policymaking process Market-based policy making process depends on society’s desire for change. Every legislative action must gain public support since such action boosts developmental incentives within different development plans. Policy cycle in most regions begins with proposal on a course of action, which is followed by law enactment and finally various actions capable of providing successful implementation of the law. Re-evaluation of the policy takes place after quite some time for purposes of assessing whether it has achieved intended goals, costs and if any change is necessary. For instance, major environmental regulators in the US include; EPA, Interior department, USDA and Fish and Wildlife service (OECD, 1995; U.S. Environmental Protection Agency, 1996). Organizations around the world are required to meet the needs of their current consumers without jeopardizing the ability of other generations to efficiently meet their needs. Organizations are required to adopt responsible policies for their operations following the nature of impact it can have on the entire society (Stavins, 1995a). At the same time, there is need for business corporations to apply principles of sustainability in all their business operations. Such activities reflect organization’s voluntary considerations within social and environmental domains based on their operations. There is need for organizations to responsibly cater for the needs of their stakeholders. Experiencing economic prosperity at the expense of social and environmental considerations is unacceptable. In order to keep safe path and deliver appropriately to both private and public beneficiaries, there is need for reshaping environmental frameworks, rules, models and policies. This calls for frequent revision of both long- and short-term goals for the purposes of staying ahead of constant global changes (OECD, 2003; Pillet et al., 1993). The kind of relationships organizations enjoy with employees and other key stakeholders determines the level of its success. However, major business decisions leading to various forms of transformations calls for emphasis to be laid on sustainable development. These should be based on established organizational leadership. However various strategies are required for the purposes of dealing with social needs, environment and business imperatives. Organizations which consider their operations as having significant effects on the environment and society, usually reorganizes their goals and principles at the economic, social and ecological levels. This encourages operations beyond organization’s boundaries (Victor and Salt, 1995; Yanulis, 1996). Corporate responsibility is also considered vital and necessary in addressing topics based on business ethics, corporate social performance, corporate citizenship as well as stakeholder management. CSR addresses various aspects used in defining interdependencies between organizations and society at large. However, despite many corporations aiming at contributing to better society, the challenge still remains on translating their goals to reality (Ministry of Consumer Affairs, 2005; OECD, 2004). Environmental policy processes According to research environmental policy processes concerning environmental regulation is used as a reflection for a country’s democratic process.  This provides honorable legacy and sustainability aspects for posterity and future generations.  There is probability that such fair, reasonable democratic process is capable of allowing suitable, efficient plan of action from policymakers (OECD, 2005). There are several contributors involved in this process from Corporate, Social and business environment. Business corporations play major role within the society hence calling for new leadership roles and tactics which at times come into conflict with key stakeholders. Understanding on the relationship between environment and stakeholders requires concrete engagement in environment policing. Amongst key stakeholders are the shareholders, consumers, the environment and society at large. Interactions between environment and stakeholders can be explained through relationship models. There are possibilities of leaders managing environmental activities and producing good results based on the extent to which they apply Corporate Social Responsibility activities (Pearson, 1992; Pearson and Smith, 1991). In most instances, crises experienced within public domain are usually a reflection of the extent to which coordinated activities within organizations are implemented. There should be detailed enforcement of public policies for the purposes of ensuring societal safety. However, much emphasis should be placed on areas with dense human activities since much responsibility allocation is required. Such includes various aspects as public administration from the company’s perspective (Figge, 2005). Importance of environmental policy Business organizations around the world are required to meet the needs of their current consumers without jeopardizing the ability of the successive generations to efficiently meet their needs (Guerin, 2003). Market-based policy instruments ensure that organizations remain responsible for their operations and various impacts on the entire society. At the same time there is need for business corporations to apply principles of sustainability in all their business operations. Such activities reflect organization’s voluntary considerations within social and environmental domains based on their business operations (Stewart and Wiener, 1992). There is need for such businesses to responsibly cater for the needs of their stakeholders. Experiencing economic prosperity at the expense of social and environment considerations is unacceptable. In order to keep safe path and deliver appropriately to both private and public beneficiaries, there is need for reshaping organization’s frameworks, rules as well as business models. This calls for frequent revision of both long- and short-term goals for the purposes of staying ahead of constant changes within the global market (Pearce and Warlord, 1993). The kind of relationships organizations enjoys with employees and other key stakeholders determines the level of its success. However, major business decisions leading to various forms of transformations calls for emphasis to be laid on sustainable development. These should be based on established organizational leadership. However various strategies are required for the purposes of dealing with social needs, environment and business imperatives. Organizations which consider their operations as having significant effects on the environment and society, usually reorganizes their goals and principles at the economic, social and ecological levels. This encourages operations beyond organization’s boundaries (New Economics Foundation, 2005; Hahn and Robert, 1991). Environmental policy is considered vital and necessary in the process of addressing topics based on business ethics, corporate social performance, corporate citizenship as well as stakeholder management. An environmental policy addresses various aspects used in defining interdependencies between organizations and society at large. However, despite many corporations aiming at contributing to better society, the challenge still remains on translating their goals to reality (Gunningham and Sinclair, 1998; Poterba, 1993). Economic Policy There are real issues concerning resource distribution within education sector, this is attributable to real economic issues which encompasses the role of trade costs in spending and financing of investment expenses. These issues contribute so much in revealing the reasons as to why cost on education do not adjust appropriately and quickly to economic changes. This has caused so much increase in prices making citizens to pay more for the same goods and services. Slow rate of increase in income as compared to inflation has led to low standards of living since most commodities are not affected on equal measure, hence making financial planning more cumbersome. This has forced the majority of the people to save more for the purposes of managing higher pricing of goods in future (Samuelson and Solow, 1990). Effects of bad Economy The inflation rate has badly hurt people’s standard of living, since the rising prices have ensured that the majority of the population pays more for same goods and services. The levels of income have remained the same or rather increased at a slower rate compared to education cost and inflation leading to drastic decline in standard of living. The inflation rate has made it difficult for retirement planning because the target has to be kept higher for the purposes of affording the same quality of life in future (Hanson et al, 1997; Bovenberg and Goulder, 1996). This requires citizens to save more currently for the reasons of paying for high education costs and prices of goods and services in future years. Currently goods and services cost much hence leaving people with less to save out of their income. For instance the UK government has increased the mortgage interest rates, since the inflation rates have spiraled faster than the return on fixed assets hence making them become less valuable. The less fortunate cannot afford the luxury of paying for mortgage as well as for their children’s education. The difference in prices due to inflation is a real reflection on the deterioration of economic values within the society (Schulz and Held, 2001). The rate of unemployment has had tremendous impact on both social and economic sectors. The inability of people to meet their needs owing to unemployment has led towards increase in crime rates, health problems and homelessness amongst other social challenges. Unemployment has also lowered the ability of government to provide adequate service to its people since there is less payment in income and sales taxes. Greater reliance on government assistance has created economic stress on social programs as well as on taxpayers (Poterba, 1991). Causes of bad Economy According to OECD, (2002), one of the contributors towards bad economy is outsourcing. People have been hired from foreign countries to work in various governments, and this has had adverse effects on the economy. This is because thousands of native citizens have been stripped of their jobs making some countries loose competitive advantage to other countries hence permanent loss on economy and skilled workers. In such cases, both semi-skilled and skilled jobs have been lost through outsourcing to other countries (Saleem, 2008). This has indeed made many citizens to remain in poverty since even the minimally skilled jobs are difficult to find, hence reduction in consumer spending as well as tax revenues. Manufacturing sector have experienced tremendous job losses, almost one-third have been displaced in the labor intensive industries and on reemployment their wages are reduced by at least 15%. The government should know that those who are jobless are unable to purchase homes, educate their children and at the same time spend money. Owing to these it should be realized that the producers are unable to make money if people do not buy (Poterba, 1990). For example, the issue that dominated American Economic Status within the last twenty years has been based on the size and operations of the Federal government. Research in recent years reveals that one-fourth share of the nation’s Gross Domestic Product went to the Federal government. There has been tremendous increase in Federal government expenditures since World War II. However, the Federal government has contributed significantly towards enhancing functioning capabilities of U.S. economy. These include provision of such necessities as common defense, establishment of legal framework used in resolving disputes, construction of infrastructure as well as supervision of minimum safety conditions within the country. However, such positive contributions have been impacted by some negative aspects such as excessive taxation, over-regulation, over-spending within the some sectors as well as offering special favors (Visco, 2000; Weyant, 1993). Plan of action Market-based policy instruments are necessary for the sole purpose of dealing with the economic crisis affecting development conditions within a country. This section of the paper enlists some of the appropriate and possible actions that should be taken for the purposes of fulfilling the aforementioned objectives. There is belief in many that inflation makes it easier for the government and other financial institutions including their employers to deceive them. This calls for quick review on financial laws especially those safeguarding price controls on goods and services. This follows the fact that changes in prices make it easier for some employers to deceive employees concerning their real wages (Smith, 1992b; Stavins, 1995a). According to one recent market-based policy instruments there is belief that majority base their level of satisfaction on nominal earnings hence ignoring the real earnings. The effects of inflation involving the complexity with which financial assets are evaluated should be reviewed to avoid the possibilities of financial Institutions defrauding those who are perceived low income earners and of average lifestyle. Cases where the government delays in changing tax brackets after recovery from inflation requires attention for the purposes of preventing the majority on high tax payment (OECD, 1997; Zollinger and Dower, 1996). On the sides of production, firms are capable of improving their productivity whenever prices stabilize, but finds it difficult in case of inflation. Individuals have found it difficult to judge on their financial abilities in relation to future commodity prices. At the same time, businesses also find it difficult to account for profit margins in relation to cost of production. The rise in oil prices has led to low productivity on majority of American workers since their wages shrank significantly. Only few from the elite group benefit by the redistribution of wealth from creditors to debtors (OECD, 2000). Some effects of economic stress are very open but there are a number which seems hidden. The less obvious effects normally vary across markets owing to different country systems that are at times inclined towards employment based coverage. The nature of the economy has shaped the various complex interactions among employment and financial access to healthcare. Many employed people have been forced to pay health coverage even during economic downturns; few employers are always willing to drop health coverage in such times (Stavins and Zylicz, 1994). Those with low ranked jobs working in small firms are likely to lose their coverage when they lose their jobs making them more poor and vulnerable. Conclusion It is evident that conventional approaches on environmental management as used in most developing countries produce ineffective results. There is need to involve the formal sector as well as creating public awareness concerning the dangers posed by poor environmental management. Market-based policy instruments champions for frequent recycling of renewable products that provides fresh environmental solutions. All the measures taken by developed countries and influential organizations should be practiced in other countries including informal sectors as well as municipal councils. The governments should move swiftly from the centralized model and involve other small players such as the community groups as well as the private sector. There is need for more aggressive campaigns capable of educating the population on good environmental policies and management including benefits of recycling waste products. Effective management of the environment through market-based policy instruments leads to exponential increase in the rate of environmental waste products management due to urbanization, globalization and population growth. It would not be favorable for the citizens from any country to continue operating in such like economic situations which guarantees no good results in the future. Examination should be done on the long-run evolution of the country’s competitive exchange rates as well as stock prices. There is need for market-based policies for the purposes of adjusting exchange rate to below any historical low, with the same applied to the stock prices. At the same time, monetary policies play major role in the process of regulating the effects due to correction within stock markets. Correction of the monetary policy would help in countering the substantial and negative effects of fall in stock market prices. With due respect to the financial department, the document thus appeals to swift government intervention on these matters for the benefit of the common citizen since there is a strong belief that government is well able to extensively address this matter and provide lasting solution to the economic problems. References Bovenberg, A. L., & de Mooij, R. 1994. Environmental levies and distortionary taxation. American Economic Review, 84 (4), 1085-9 Bovenberg, A. L., & Goulder, L. H. 1996. Optimal environmental taxation in the presence of other taxes: general-equilibrium analyses. American Economic Review, 86 (4), 985-1000 Figge, F. 2005. Value-based environmental management. From environmental Shareholder value to environmental option value. Corporate social responsibility and environmental management, (12), pp 19-30 Guerin, K. 2003. 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Private financing for global environmental initiatives: Can the Climate Conventions Joint Implementation pave the way? Issues and Ideas,World Resources Institute, Washington, D.C., October. Read More