A prospective evaluation of contingent loans as a means of financing wild dog exclusion fences

Abstract

Invasive species, such as wild dogs can be considered an externality arising from the activities of pastoral enterprises, with producers having limited responsibility for the problem and limited capacity to mitigate it. There are therefore arguments for government intervention through encouraging both individual and collective control measures. Governments are however increasingly inclined to ensure recipients of support make some contribution where there are private benefits. An example of this, in Australia, is the requirement that students repay some of the cost of their tertiary education. Using the issue of wild dog exclusion fencing in south-west Queensland as a case study, this paper considers if and how a policy instrument adopted for higher education (HECS-HELP), contingent loans, could be adapted to address problems of externalities in rural Australia. Central to the issue of exclusion fences are high upfront costs and highly variable incomes that limit the ability to recoup those costs according to a predictable timeline. Considering a range of incomes and a variety of private/government shares of the cost of the fences, we examine the effects of revenue contingent loans for the construction of these fences, using model farms developed from survey data for farm businesses in south-west Queensland. We find that contingent loans could mitigate the hardship effects of additional debt and variable incomes. Businesses with smaller properties and relatively lower incomes may however struggle to pay back larger loans. Using south-west Queensland as a case study, we show how different shares of contributions change the time to pay back loans, outline how a contingent loan scheme might be administered and note some issues with integrating personal contingent loans into a collective fence arrangement.