Economic Tools and Incentives for Natural Resource Management
An introduction to the Decision Support Tool designed to assist the
identification of Economic Instruments
To create incentives for improved environmental and natural resource management
What is an Economic Instrument?
An economic instrument can generally be defined as any instrument that aims to influence the way people use natural resources and manage the environment. This is achieved by changing the extent to which people feel or experience the cost associated with the use of resources, or the consequences of their decisions about how to manage or protect the environment. An economic instrument, or combination of instruments, provides financial and other incentives so that users of natural resources pay for the social costs of that use, or benefit from the sustainable management of the resource and environment.
What is the aim of the Decision Support Tool?
Economic instruments aim to provide incentives that will induce a change in the behaviour of people to improve the way they use and manage environment and natural resources. However, an economic instrument will only be effective if it is correctly matched to the environment and context in which it is going to be applied. The aim of this Decision Support Tool is to assist the process of context-instrument matching, and to support the selection of the economic instrument(s) that will have the greatest potential to provide effective incentives for interventions that result in improved environmental management. Fourteen economic instruments are included in this Decision Support Tool. While there are many other types of economic instruments, the 14 included in this Decision Support Tool were selected on the basis of their relevance to the integrated natural resource management objectives of the AFROMAISON Project.
What influences the effectiveness of Economic Instruments?
The effectiveness of an economic instrument in providing an incentive for improved environmental management is not only determined by the value of the benefit (incentive) it generates. There are a number of other factors that will also influence the effectiveness of an instrument, for example:
  • Extent to which the instrument matches or complements the social, political and economic contexts.
  • Extent to which the instrument incentivises an intervention that corresponds with the environmental challenge.
  • Extent to which incentive is recognised as meaningful or worthwhile by the target agents or institutions whose behaviour or management approach needs to change.
Furthermore in developing countries, in particular, where financial resources are typically scarce and there may be limited institutional capacity, other criteria that are also important to consider when selecting the best economic instruments include:
  • Cost-effectiveness
  • Administrative feasibility
  • Equity
  • Consistency with other development objectives
  • Flexibility and transparency
It is therefore important that a conscious selection process is undertaken to ensure that the economic instrument is a good fit to the context. Poor 'context-instrument' matching could result in the selection of an ineffective instrument that does not result in the desired behaviour/management change by the target agents or institutions, or may even act as a perverse incentive and result in a change contrary to the desired response.
Guide to Applying the Decision Support Tool
This Decision Support Tool uses four categories of criteria to explore and then highlight economic instruments would likely provide the most meaningful incentives for implementation of management or rehabilitation actions/interventions in a particular context:
  • Environmental these criteria describe the objectives/priorities for the environmental interventions that are to be incentivised by the economic instrument. They also describe the environmental context/conditions in the natural environment in which the economic instrument if to be applied.
  • Social These criteria refer to the social context, describing the socio-economic profile and characteristics of the communities and agents that would be involved in implementing the economic instrument.
  • Market The market criteria relate to the market conditions in the environment within which the instrument will be applied. They also address the market for, or in which, environmental goods and services are traded.
  • Governance These criteria relate to the institutional arrangement and structures, and their effectiveness in coordinating or controlling activity in society and in the environment.
Overview of Economic Instruments considered in the Decision Support Tool
The economic instruments considered in this Decision Support Tool can be grouped into three categories:
  • Property-rights based instruments
  • Ownership rights (e.g. strengthening ownership rights and use rights)

  • Price based instruments
  • Market creation (e.g. tradable quotas, permits and shares)
  • Fiscal instruments (e.g. tax differentiation)
  • Charge systems (e.g. user charges, pollution charges)
  • Financial instruments (e.g. subsidies, payments for ecosystem services)
  • Environmental bonds and deposit refund systems (e.g. environmental performance)

  • Legal, voluntary and information based instruments
  • Liability agreements (e.g. legal liability, non-compliance charges)
  • Voluntary instruments (e.g. voluntary environmental agreements, environmental certification)
  • Information based (e.g. labelling)
A detailed guide on how the Decision Support Tool can be used and how it functions is provided under the 'Guide to using the Decision Support Tool' available under the Help Section.

An overview of the definitions adopted and the full list of economic instruments considered in this Decision Support Tool is provided in the document titled: 'Definitions and Review of a Suite of Economic Instruments' available in the Help Section
Creative Commons License
Afromaison - Economic Instruments, Decision support tool by Fonda Lewis, Eduard Interwies, Yaniss Guigoz, Gregory Giuliani is licensed under a Creative Commons Attribution-ShareAlike 3.0 Unported License. Non-digital works: This work is licensed under the Creative Commons Attribution-ShareAlike 3.0 Unported License. To view a copy of this license, visit http://creativecommons.org/licenses/by-sa/3.0/deed.en_US.