First, is deals with the effects of a policy on industry profitability. In general, productive efficiency of the industry will improve if a policy mechanism allows structural adjustment. Second, it looks at the economic efficiency in a collective sense, assessing the total benefits of the associated change in resource allocation against its total costs. Continuing incentive and innovation address the question whether an incentive instrument encourages experimentation and change and provides an ongoing incentive for improvement of industry efficiency and environmental improvement beyond a set target. They achieve this, in part, by taking advantage of intrinsic motivation.
Intrinsic motivation is a characteristic of people who are already complying.
Use is made of such motivation to design policy instruments that encourage people who are not complying to change their behaviour, without crowding out the behaviour of intrinsically motivated individuals. Administrative feasibility and cost evaluates whether there are impediments to putting a policy mechanism into practice, assesses the risk of government and administrative failure, considers transaction costs, and assesses the efforts involved in administering and policing the instrument. Incentive instruments may be set up for the specific purpose of raising revenue to cover administrative costs incurred by government agencies. Equity is a criterion that examines the distribution effects of a policy instrument within and among generations. At an industry and individual level, this includes an assessment of who are the winners and who are the losers when a new instrument is introduced and what are the regional employment impacts and flow-ons to other sectors of the economy.