Rethinking the Externality Issue for Dryland Salinity in Western Australia

Dryland salinity has been conceived of as a problem involving massive off-site impacts and therefore requiring coordinated action to ensure that land managers reduce those off-site impacts. In economic terms, salinity is seen as a problem of market failure due to externalities, including external costs from one farmer to another and from the farm sector to the non-farm sector. In this paper, we argue that, at least in Western Australia (WA), externalities are much less important as a cause of market failure than has been widely believed. If all externalities from salinity in WA were to be internalised, the impact of this on farm management would be small. There are a number of factors contributing to this conclusion, both hydrological and socioeconomic. Together, they mean that, relative to common belief, the true physical severity of externalities is diminished, and the economic significance of the remaining externalities is further diminished. This does not mean, however, that salinity is amenable to resolution in a free market, as there are other major causes of market failure, specifically public-good issues in research and development, and a range of problems related to farmer adoption of salinity treatments. Existing policies are not adequately addressing these market failures. Current misconceptions about the importance of externalities from salinity are themselves hindering progress in a number of ways.

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 Record created 2017-04-01, last modified 2017-04-26

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