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SECTION 8 Framework for assessing market mechanisms In Part IV of this report we examine a number of case studies in order to draw lessons on best-practice in the use of these mechanisms. In this section we set out a framework for analysing the performance of different market-based mechanisms. We focus on two issues: the choice of market-based mechanism and the implementation of that mechanism. The choice of market-based mechanism As explained in sections 5 and 6, policy makers designing public-policy interventions have to balance two factors. Market failure (or issues of equality) may provide a rationale for some form of intervention, but intervention may itself give rise to government failures that may outweigh the problem that intervention was designed to correct. This balance suggests two options: intervening in the expectation that government failure will not undermine the achievement of the policy objective, or not intervening on the basis that it is better to live with some degree of market failure rather than create even greater problems through public-sector intervention. As explained in Section 7, a third option is to use a market-based mechanism in order to minimise the government failure that might arise from intervention. It follows that, in assessing the performance of a market-based mechanism, there are two principal situations to use as a comparison: no intervention or intervention using some other mechanism. In practice, we assume that in the absence of a market-based mechanism the government would still have wished to intervene in the areas we are studying (for example, because intervention had already been taking place before the market-based mechanism was adopted) so the appropriate counterfactual is one where the government intervenes using a more traditional command-and-control mechanism. In the case studies below, it is possible to identify an alternative method of intervention that has been used in the past to achieve the same or a similar policy objective, and we use that as the basis of our comparison. In the case studies we therefore compare the market-based mechanism with the mechanism that had previously been used in the same or a similar area. 70
Implementation issues A further comparison that can be made is between the scheme as it was implemented and what might be termed an ‘optimal’ public-policy intervention. In section 7 we identified a number of issues that arise in the implementation of specific market-based mechanisms. These issues have been suggested by the academic literature on the use of market-based mechanisms and previous experience of their use. In the case studies we consider the implementation issues associated with specific market-based mechanisms. These issues are specific to the mechanism under consideration (although there may be some overlap between different mechanisms). In Part II we made general recommendations on how policy makers might best deal with these issues and implement the chosen market mechanism in practice. Summary Section 8 – Framework for assessing market mechanisms The case studies in Part IV are designed to provide practical illustrations of the theory developed in this literature review. They have been selected to cover a range of different mechanisms used in different economic and policy contexts. Each study looks at the policy goal the market mechanism was designed to deliver and the problems with previous methods of intervention that motivated the introduction of market forces. We describe the way in which each mechanism was introduced and, with reference to theoretical predictions, we look at the extent to which scheme design has been successful in capturing potential benefits and avoiding potential problems. We also consider implementation issues and conclude in each case by drawing lessons that could be helpful for policy makers considering the use of this particular mechanism. 71
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DTI ECONOMICS PAPER NO.14 Public Po
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DTI ECONOMICS PAPER NO.14 Public Po
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Contents Acknowledgements vi Forewo
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Contents Section 11 Emissions Tradi
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Foreword There is increasing intere
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SECTION 1 Introduction and summary
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Public Policy: Using Market-Based A
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SECTION 2 Using market mechanisms U
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Page 30 and 31: SECTION 3 Lessons for the design an
Page 40 and 41: SECTION 4 Introduction This part of
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Page 81 and 82: Part IV Case Studies 73
Page 83 and 84: ● the Green and White papers behi
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Page 87 and 88: Table 9.3 Companies providing priso
Page 89 and 90: Section 9 - Competitive Tendering o
Page 91 and 92: detect any deviation from a collusi
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Page 95 and 96: (e.g. lighting). This impact could
Page 97 and 98: MARKET POWER The full benefits of c
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Page 101 and 102: on competition is uncertain. The ab
Page 103 and 104: Controlling for problems of asymmet
Page 105 and 106: Procurement process design One way
Page 107 and 108: however, financial deductions are m
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Page 113 and 114: Figure 9.1: Difference between the
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Page 117 and 118: design the invitation to tender and
Page 121 and 122: and demand conditions. Second, we d
Page 123 and 124: DEMAND Anyone can apply to a local
Page 125 and 126: ● Rent deposit guarantee by the l
Page 127 and 128: The Green Paper stated the Governme
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It was not an objective of ODPM or
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DESCRIPTION OF MARKET MECHANISM The
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Once the outcome is determined, fee
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DEVELOPMENTS OVER TIME The major mo
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Concerns about capacity constraints
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from those already located within t
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In several areas, registrations by
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Controlling for information problem
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extent though, it was competition b
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Section 10 - Choice-Based Letting i
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levels are reducing and new tenants
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desired effect of limiting points-c
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efficiency savings in some areas. T
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SECTION 11 Emissions Trading Introd
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Section 11 - Emissions Trading coex
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Section 11 - Emissions Trading emis
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A more detailed and diagrammatic de
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The costs of monitoring and reporti
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INITIAL ALLOCATION OF PROPERTY RIGH
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only 242 in the second year. The di
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COST-EFFICIENT EMISSIONS REDUCTIONS
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consultants to Defra of £11 per to
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Participation has helped us to rais
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Section 11 - Emissions Trading emis
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SECTION 12 Issues in the implementa
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