Payments for environmental services as an alternative to logging under weak property rights: The case of Indonesia

Decentralization reforms in Indonesia have led to local communities negotiating logging agreements with timber companies for relatively low financial payoffs and at high environmental cost. This paper analyzes the potential of payments for environmental services (PES) to provide an alternative to logging for these communities and to induce forest conservation. We apply a game-theoretical model of community-firm interactions that explicitly considers two stylized conditions present in the Indonesian context: (i) community rights to the forest remain weak even after decentralization, and (ii) the presence of logging companies interested in the commercial exploitation of the forest. Intuition may suggest that PES design should focus on those communities with the lowest expected payments from logging deals. However, we show that these communities may not be able to enforce a PES agreement, i.e., they may not be able to prevent logging activities by timber companies. Moreover, some communities would conserve the forest anyway; in these cases PES would not lead to additional environmental gains. Most important, the introduction of PES may increase a community's expected payoff from a logging agreement. A failure to consider this endogeneity in expected payoffs could lead to communities opting for logging agreements despite PES, simply allowing communities to negotiate better logging deals. Our results indicate that PES design is a complex task, and that the costs of an effective PES system could potentially be much higher than expected from observing current logging fees. Using data collected in Indonesia on actual logging fees received by communities, we illustrate how the theoretical results could be used in empirical analysis to guide PES design. Our results are likely to be useful in other cases where local people make resource use decisions but have weak property rights over these resources, and where external commercial forces are present. The results highlight the importance of understanding the details of the local context in order to design PES programs appropriately.     

Breaking the elected rules in a field experiment on forestry resources

Harvesting from common resources has been studied through experimental work in the laboratory and in the field. In this paper we report on a dynamic commons experiment, representing a forest, performed with different types of communities of resource users in Thailand and Colombia, as well as student participants. We find that all groups overharvest the resource in the first part of the experiment and that there is no statistical difference between the various types of groups. In the second part of the experiment, participants appropriate the common resource after one of three possible regulations is elected and implemented. There is less overharvesting after the rules are implemented, but there is a significant amount of rule breaking. The surprising finding is that Colombian villagers break the rules of the games more often than other groups, and even more so when they have more trust in members of the community. This observation can be explained by the distrust in externally proposed regulations due to the institutional and cultural context.     

Does hidden information make trade liberalization more fragile?

Abstract This paper focuses on the impact of hidden information on strategic interaction in the context of trade agreements. In the presence of informational asymmetry it is possible that a tradeoff between liberalization and sustainability of cooperation emerges. It is shown that it may be optimal to agree on a degree of liberalization associated with a strictly positive ex ante probability of deviation occurring. In that case, cooperation will break down in finite time, and the optimal degree of liberalization cannot be applied indefinitely.     

Boundary conditions for the sustainable use of major fish stocks in the Baltic Sea

The history of the management of Baltic fishery resources suggests that both biological and non-biological factors influence management decisions and that both types of information are essential for management which promotes sustainability. There is a direct link between the exploitation level and the risks for fishing as an economic activity due to fluctuations in the resource. This paper analyses the sustainability of the present catch levels of major Baltic fish stocks. By examining the rate of fishing mortality and recruitment variability, the possibility of sustaining present catch levels can be investigated. Current catch levels of Baltic cod and some salmon stocks are not sustainable whereas sprat and herring catches are. High rates of fishing mortality of cod and salmon may endanger stocks if a drop in the recruitment causes an increase of the fishing mortality rates in order to sustain short-term catches. By analysing the trade off between exploitation level and risk of stock decline, managers can obtain a basis for quota negotiations.     

Cooperative and Non-Cooperative Exploitation of the Arcto-Norwegian Cod Stock

A two-agent model for the exploitation of the Arcto-Norwegian cod stock is developed to investigate the economic benefits that can be realized from the resource, and the effect of exploitation on stock sustainability under cooperation and non-cooperation. The two agents are identified in this study as a trawl fishery versus a coastal fishery. Unlike in Munro (1979), where conflicts in the management strategies of agents arise from differences in the perceptions of the discount factor, fishing effort costs, and consumer preferences, here conflicts arise mainly from the differences in fishing gear and grounds, and the age group of cod targeted by the two agents. Using a game theoretic framework, we show that given available data, the optimum optimorum is obtained under cooperation with side payments and no predetermined harvest shares, in which case the coastal fishery buys out the trawl fishery. However, sensitivity analysis shows that if the price premium assumed for mature cod is taken away, the trawl fishery takes over as the producer of the optimum optimorum.     

Reconciling economic and biological modeling of migratory fish stocks: Optimal management of the Atlantic salmon fishery in the Baltic Sea

The paper puts forward a model of the Atlantic salmon fishery in the Baltic Sea that integrates the salient biological and economic characteristics of migratory fish stocks. Designed to be compatible with the framework used for actual stock assessments, the model accounts for age-structured population dynamics, the seasonal harvest and competing harvesting by commercial and recreational fishermen. It is parameterized for the Simojoki River stock. The socially optimal policy for maximizing discounted net benefits from the fishery within an uncertain environment is determined using a dynamic programming approach and numerical solution method. Our results indicate that substantial economic benefits could be realized under optimal management without compromising stock sustainability.     

Community–Industry Contracting over Natural Resource use in a Context of Weak Property Rights: The Case of Indonesia

Decentralization in Indonesia has resulted in an increased influence of local communities over the terms of logging agreements with timber companies. The outcomes of such community–company negotiations vary significantly across communities. What are the conditions that cause this variation, and how can the outcomes be more effectively and efficiently influenced by third-party actors such as the local government or NGOs? This paper addresses these questions by developing a game-theoretic model to illustrate the strategic interactions between communities and companies. The model allows for endogeneity of de facto property rights and bargaining positions. We show that third-party actions to improve the community’s bargaining position by raising its reservation utility may result in an increase in the area logged and thereby harm the environment. Our results indicate that the strategy of intervention matters. In particular, strategies that raise the sensitivity of interventions to local logging threats are likely to be more cost-effective in supporting communities and reducing forest degradation than more indiscriminatory strategies. The model will be relevant to other situations where communities negotiate contracts over natural resource use with outside actors in a context of weak property rights, a situation increasingly observed in other developing countries.     

Co-managing common-pool resources: Do formal rules have to be adapted to traditional ecological norms?

We examine the effectiveness of three democratically chosen rules that alleviate the coordination and cooperation problems inherent in collectively managed common-pool resources. In particular we investigate how rule effectiveness and rule compliance depend on the prevailing local norms and ecological values held by resource users. For this purpose, we employ a framed field experiment that is based on a rangeland model for semi-arid regions and carried out with communal farmers in Namibia and South Africa. Participants could vote for three ‘best practice’ management rules found in many places around the world that are discussed for implementation in the study area: (temporary) private property rights, rotational grazing or limitation of livestock numbers. All rules were designed in a way that facilitated cooperation or coordination of actions. The focus of this study lies on the interactions between these rules and prevalent ecological norms exhibited in the rounds prior to rule implementation. In contrast to previous lab experimental studies, we find that democratic voting of rules is not sufficient for high rule compliance and an overall enhancement in cooperation. Rules turned out to be inefficient if they were in conflict with the prevalent ecological norm.     

Socio-ecological explanations for crowding-out effects from economic field experiments in southern Africa

Economic and psychological literature mentions three conditions under which the crowding-out effect of pro-social behaviour is likely to occur and to crowd out citizens' moral obligations to behave co-operatively. I use a framed field experiment on joint extraction from a common-pool resource (CPR) where the crowding-out effect has already been reported before in combination with the trust game carried out in farming communities of Namibia and South Africa to replicate these conditions. The research design and the cross-cultural setting enable to explicitly control for these effects. The results of the experiments support that the crowding-out effect depends on:

• •The nature of the external intervention (controlling vs. supportive external intervention)
• •The degree of participants self-determination (high vs. low self-determination in the group)
• •A society's norms of trust and reciprocity (high vs. low trust within the society)

The results imply that outside regulations aiming to conserve natural resources risk worsening the situation when neglecting democratic legitimization as well as local community norms.     

Optimal Taxation of International Income Flows*

Double taxation of international income flows has been regarded as undesirable and international tax agreements have been negotiated to avoid it. The questions asked are whether double taxation is appropriate and whether cooperation is required to reach the optimal solution. The results are that generally some double taxation is desirable, as long as taxes are applied at the appropriate rates, and that an efficient solution can be attained in the absence of explicit cooperation using a deduction rule, instead of the now commonly used credit rule. A rationale for the current system of tax agreements and their emphasis of the credit rule is discussed.     

Dissertation abstract: The experimental analysis of the political economics of fisheries governance

This dissertation focuses on the political economy of fisheries governance. The study develops a formal model of fisheries governance by combining the features of the common pool fishery and the political institution of lobbying; designs a laboratory fishery governance institution and conducts economic experiments to test the hypotheses derived from the formal model. Specifically, the study analyzes how fishing firms invest in efforts to influence fishery regulation and management through voluntary contribution lobbying. The study also analyses and compares contribution and effort behavior in the lobbying and the CPR using data from economic experiments. The results indicate that lobbying to change suboptimal fishery regulations was significantly below the subgame perfect equilibrium prediction and contributions to raise the cap were significantly different than contributions to lower the cap toward the social optimum. Study results show that subjects successfully lobbied to raise inefficiently low fishing quotas, but were unable to lobby to reduce inefficiently high fishing quotas. Detailed analysis of subjects’ contribution and effort behavior suggest that despite the interesting benefit-cost duality between pure public goods and CPRs, the pattern of cooperative behavior in these two social dilemma situations was different and the level of cooperation in the voluntary contribution lobbying experiment was lower than those reported in other public goods experiments. To provide external validity to these experimental findings, the study further analyzes and compares lobbying expenditures in the fishery sector with those in other natural resource industries using field data from the United States. A comparison of actual lobbying expenditures as percentage of valued added shows that lobbying effort in the U.S fishery sector is not significantly different than those in other natural resource industries such as mining and electric utility industries, but the pattern of lobbying is different. Whereas fishing firms lobby through associations or pressure groups, firms in other natural resource industries lobby unilaterally. This observation suggests that differences in industrial structure and incentives influence the pattern of lobbying and the lobbying behavior of firms across industries. The theoretical predictions derived from the formal model of fisheries governance are consistent with our experimental findings and with the field data on lobbying in the US fisheries sector. These findings suggest that heterogeneity drives rent-seeking activities in the US fisheries sector and that fishing firms attempt to circumvent political collective action problems by forming and lobbying through associations of stakeholders with relatively homogenous policy preferences. JEL Classification D22, D72, D78, H41 Advisor: Prof. Jon G. Sutinen     

Investing in natural capital as management strategy in fisheries: The case of the Baltic Sea cod fishery

Many of today's fish stocks are officially managed following the precautionary approach. Yet, different political objectives and uncertainties among fishermen about their economic future make its implementation difficult. Over 75% of all commercially valuable stocks are exploited, overused, or collapsed and in a state of recovery [FAO, 2004. The state of the world fisheries and aquaculture. FAO, Rome. Managing fish stocks with an ecosystem-based approach is likely to stop the divestment of natural capital by combining sustainable use strategies with the preservation of marine ecosystems. Using the example of the Baltic Sea cod fishery, we show that a recovery program is economically and ecologically viable and reduces negative externalities. While policy makers must assist fishermen during the early years of the program, fishermen will experience greater landings and profits in subsequent years.     

Trust, Inequality and Ethnic Heterogeneity

Using a large Australian social survey, combined with precise data on neighbourhood characteristics, I explore the factors that affect trust at a local level ('localised trust') and at a national level ('generalised trust'). Trust is positively associated with the respondent's education, and negatively associated with the amount of time spent commuting. At a neighbourhood level, trust is higher in affluent areas, and lower in ethnically and linguistically heterogeneous communities, with the effect being stronger for linguistic heterogeneity than ethnic heterogeneity. Linguistic heterogeneity reduces localised trust for both natives and immigrants, and reduces generalised trust only for immigrants. Instrumental variables specifications show similar results. In contrast to the USA, there is no apparent relationship between trust and inequality across neighbourhoods in Australia.     

Socio-ecological explanations for crowding-out effects from economic field experiments in southern Africa

Economic and psychological literature mentions three conditions under which the crowding-out effect of pro-social behaviour is likely to occur and to crowd out citizens' moral obligations to behave co-operatively. I use a framed field experiment on joint extraction from a common-pool resource (CPR) where the crowding-out effect has already been reported before in combination with the trust game carried out in farming communities of Namibia and South Africa to replicate these conditions. The research design and the cross-cultural setting enable to explicitly control for these effects. The results of the experiments support that the crowding-out effect depends on:

•

The nature of the external intervention (controlling vs. supportive external intervention)

•

The degree of participants self-determination (high vs. low self-determination in the group)

•

A society's norms of trust and reciprocity (high vs. low trust within the society)

The results imply that outside regulations aiming to conserve natural resources risk worsening the situation when neglecting democratic legitimization as well as local community norms.     

Complexities of Decentralization in a Globalizing World

In many developing countries, decentralization programmes for natural resource management aim to induce incentives for sustainable resource management at the local level. The effectiveness of such programmes has, however, suffered from weak property rights to the resource and by the presence of externalities. Growing economic integration among countries has exacerbated these problems by increasing the exposure of local user groups to commercial actors interested in resource extraction. In this paper, the interplay of decentralization and globalization in affecting environmental outcomes and community welfare is analysed through a game-theoretic model of community-firm interactions. The results highlight the complexities of policy design. First, by raising the extractive value of the resource, globalization may lead to communities negotiating resource extraction agreements with firms. Second, with a lack of effective state enforcement of community resource rights, communities may be unable to assume de facto ownership over the resource, while commercial actors succeed in exploiting resources without community consent. No single policy option provides a panacea to counteracting these negative effects. Instead, a mix of policies, combining incentive payments along with the provision of more secure property rights and poverty alleviation is shown to have the potential to improve both environmental outcomes and community welfare.     

Sustainability ranking and improvement of countries

Human society is on a collision course with nature, thus its sustainability is seriously questioned nowadays. To understand this problem better it is essential to define and measure sustainability. In this paper a model that uses fuzzy logic, called SAFE, is used to measure sustainability. The sustainability of a country is based on a multitude of basic indicators. In all 75 indicators for 128 countries are used. This work extends SAFE as follows: (a) The model is amended by an imputation procedure to fill in missing data, (b) the rule bases of SAFE are compiled algebraically, and (c) sustainability thresholds are defined so as to reflect expert opinion and international agreements and norms. Countries are ranked according to their sustainability index. Switzerland and Sweden take the first two places and Mauritania and Sudan the two last ones. A sensitivity analysis pinpoints those basic indicators that affect sustainability the most. Decision makers may focus on these indicators to improve sustainability.     

Cooperation in a Stochastic Transboundary Fishery: The Effects of Implementation Uncertainty Versus Recruitment Uncertainty

This paper examines how non-binding cooperative agreements on fisheries management can be sustained when the management plans in participating countries are implemented imperfectly, and compares the effects of implementation uncertainty and of recruitment uncertainty on the potential for cooperation. The model developed assumes two countries that share a fish stock. Reproduction depends on how much fish each country leaves behind after harvesting and hence on random variation in each country’s achieved abandonment level. A self-enforcing agreement is proposed that accounts for the random variation. The agreement is illustrated with a numerical example. A self-enforcing cooperative solution can only be sustained when uncertainty is not pronounced and when the two countries control close to equal shares of the fishery. Even when a cooperative agreement can be achieved, frequent phases of reversion to non-cooperative harvest levels are needed to support the agreement. A comparison of the effects of recruitment and implementation uncertainty on implicit cooperation indicates that implementation uncertainty is more likely to hamper cooperation.     

促进区域经济发展的社会资本培育机制建设探讨

信任、合作、规范、网络、文化认同等社会资本要素在区域经济发展中的作用越来越明显,已成为自然资本、物质资本和人力资本的必要补充,并与其一起构成区域经济发展所必不可少的要素。因此,应充分发挥区域社会资本因素的作用,并与物质资本、人力资本等融合在一起,使之形成一种推动区域经济发展的合力。地方政府在关注区域内有形资本和人力资本的投入时,更应致力于社会资本的培育。具体而言,地方政府应建立健全法律规范,营造一个诚信的制度环境;加快构建社会信用体系;加强商会、行业协会等民间组织的作用;培育创新、信用、合作、开放的区域文化。     

Cooperation,Trust and Economic Development: An Experimental Study in China

Many previous empirical studies have suggested that cooperation and trust affect economic growth. However, the precise relationship between trust and cooperation (i.e. whether trust leads to cooperation or cooperation leads to trust) remains unclear and it is not known how the level of economic development affects the level of cooperation and trust. Using a combination of public goods, gambling game and trust game experiments, we investigate the links among cooperation, trust and economic development in four regions of China. Our results suggest that, first, there is a U‐shaped or V‐shaped relationship between cooperation and economic development. Second, on the one hand, cooperation leads to trust, and on the other hand, more cooperative behaviour may be created by rewarding trusting behaviour. Third, men are more cooperative and trusting than women. Furthermore, we find that the widely used ‘GSS trust’ question from the General Social Survey (GSS) does not predict either cooperation or trust, whereas the questions ‘GSS fair’ and ‘GSS help’ have weak predictive power for trusting behaviour but not for cooperative behaviour.     

Fishery externalities and biodiversity: Trade-offs between the viability of shrimp trawling and the conservation of Frigatebirds in French Guiana

Sustainable management of natural resources, and in particular fisheries, must take into account several conflicting objectives. This is the case in the French Guiana shrimp fishery for which profitability objectives imply a reduction in the fishing activity. On the one hand, this fishery has negative externalities on marine biodiversity due to discards. On the other hand, this fishery has positive externalities on the economy of the local community and interestingly enough on a protected seabird species in the area (the Frigatebird that feeds on discards). In this paper, we examine the viability of that system considering two sustainability objectives: an economic objective in terms of the profitability of the fishing activity, and a conservation objective in terms of the Frigatebird population. For that purpose, we have developed a dynamic model of that bioeconomic system and study here the trade-offs between the two conflicting objectives. It provides a means to quantify the necessary give and takes involving the economic and ecological objectives that would ensure a viable management solution. Our study confirms the relevance of the viability approach to address natural resource management issues, which should lead to the development of new tools for the arbitration of conflicting sustainability objectives. In particular, such tools could be used as a quantitative basis for cost–benefit analysis taking into account environmental externalities.