Daly and Farley: Six General Policy Design Principles

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A touchstone from the textbook by economists Herman Daly and Joshua Farley, Ecological Economics: Principles And Applications, is its list of six general principles for policy design. I’ve shortened, without ellipses, the elaborations of each principle.

Economic policy always has more than one goal, and each independent policy goal requires and independent policy instrument.
Should we tax energy and raise its price for the sake of inducing more efficient use, or should we subsidize energy and lower its price to help the poor? One instrument (price of energy) cannot serve two independent goals (increase efficiency, reduce poverty). We need a second instrument, say an income policy. Then we can tax energy for the sake of efficiency, and distribute income (perhaps from the tax proceeds) to the poor for the sake of alleviating poverty.

Policies should strive to attain the necessary degree of macro-control with the minimum sacrifice of micro-level freedom and variability.
It is important to limit total CO2 emissions. But it is not necessary that each and every person emit exactly the per-capita average. Markets are useful in providing micro-variability, but by themselves they do not provide macro-control.

Policies should leave a margin of error when dealing with the biophysical environment.
Since we are dealing often with staying within biophysical limits, and since those limits are subject to much uncertainty and at times irreversibility, we should leave a considerable safety margin, or slack between our demands on the system and our best estimate of its capacity.

Policies must recognize that we always start from historically given initial conditions.

Even though our goal may be far from the present state of the world, the latter remains our starting point. We never start from a blank slate. Present institutions must be reshaped and transformed, not abolished. This imposes a certain gradualism. Even though gradualism is often a euphemism for doing nothing, it is nevertheless a principle that must be respected.

Policies must be able to adapt to changed conditions.
As we apply policies, we will learn how they work in the real world, and thus learn how to improve them. Adaptive management – changing our policies as conditions change and as we learn more – must be a guiding principle.

The domain of the policy-making unit must be congruent with the domain of the causes and effects of the problem with which the policy deals.
This is often called the principle of subsidiarity. The idea is to deal with problems at the smallest domain in which they can be solved.

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