Subsidies and perverse incentives
- Variable relationship:
A perverse subsidy (Policy Instrument) is one that incentivizes resource users to take actions that are detrimental to the commons (Perverse Incentives). In essence, instead of encouraging the production of a positive externality, perverse subsidies encourage the production of a negative externality and thus result in the overuse of the commons (Over-capitalization; Commons Condition Trend).
They are present in multiple environmental sectors, as described by Myers (2008):
"Perverse subsides are prominent in five leading sectors: agriculture, fossil fuels, and nuclear energy, road transport, water and fisheries. Subsidies for agriculture foster overloading of croplands, leading to erosion of topsoil, pollution from synthetic fertilizers and pesticides, and release of greenhouse gases. Subsidies for fossil fuels aggravate pollution effects of acid rain, smog and global warming. Subsidies for road transport promote pollution at local, national and global levels, including excessive road building and loss of landscape. Subsidies for water encourage misuse and overuse of supplies that are increasingly scarce. And subsidies for fisheries support overharvesting of depleted fish stocks. Not only do these environmental ills have economic costs, but the subsidies hinder the efficiency of economies overall."
- Scientific Field
- Component Type(s)
|Policy instrument||Underlying independent variable||Subsidies are designed to encourage a certain type of activity, in this case it is generally the use of the commons that is encouraged.||Subsidy|
|Perverse incentives||Proximate independent variable||The subsidy creates an incentive to intensify resource use in ways that can be personally and publicly detrimental.||Yes|
|Over-capitalization||Intermediate outcome||Subsidies frequently cause resource users to invest heavily in new capital.||Yes|
|Commons condition trend||Final outcome||As a result of the perverse incentives created by and the excessive capitalization resulting from the subsidy, the status of the commons is predicted to decline.||Worsened|
|Bans and perverse incentives||related|
Myers, Norman. 1998. “Lifting the Veil on Perverse Subsidies.” Nature 392 (6674): 327–328.