Background: Economic instruments have gained particular attention as an important tool for implementing climate change abatement strategies, for environmental management and legislation, for enhancing of water and food security, insurance against man-made and natural catastrophes. The advantage of economic instruments is that they may encompass the provision of incentives for behavioural changes, the generation of revenue for financing environmental investments, the promotion of technological innovation, and the reduction of pollution at least cost to society as a whole. Having a number of advantages, implementation of economic instruments requires thorough investigation of all circumstances and conditions under which economic instruments work in a cost-efficient and environmentally safe way.

Research challenges/questions: This project will study the role and applicability of economic instruments in the context of regional water management, design of robust agrofood production, land lease rates, optimal water distribution/quotas for irrigation, emission trading under Kyoto, pricing of catastrophic risks for insurance and markets, weather related insurance, etc. The project will be guided by the following major questions:

• What are appropriate global, regional and local indicators, constraints and thresholds that may ensure cost efficiency and environmental safety of economic instruments? How to represent not only traditional monetary values but also adequately reflect equity and poverty issues, environment, human health and wellbeing, attitudes to different inherent uncertainties and multivariate risks, security of food-water-energy supply systems, cultural and other heterogeneities, goals and constraints of diverse often conflicting stakeholders?
• What are the indicators that adequately reflect catastrophic risks? How to include these for the design of, e.g., fair insurance and financial market instruments for management of natural and man-made catastrophes?
• What is the role of uncertainties and absence of information about the future, and how these may affect the performance of existent and the design of new efficient economic instruments?

Linkages: The project links to IIASA major themes on Food and Water; Energy and Climate Change; contributes to the LUC programs on Doubling food provision, Mobilizing resource for bio-based economy, Climate change adaptation and food/water systems; has strong links to projects in Equity and poverty theme. Methodological challenges will be jointly overcome with the Advanced Systems Analysis area. Country-specific case studies will be conducted in collaboration with national institutions in China, Poland, Ukraine, US, Austria, Germany and other NMO and non-NMO countries.

Responsible for this page: Elisabeth Preihs
Last updated: 22 Dec 2011