Property Rights and Collective Action in Natural Resources with Application to Mexico

1. Property Rights and Collective Action in Natural Resources with Application to Mexico Lecture 1: Introduction to the political economy of natural resources Lecture 2: Theories of collective action, cooperation, and common property Lecture 3: Principal-agent analysis and institutional organization Lecture 4: Incomplete contracts with application to Mexico Lecture 5: A political economy model Lecture 6: Power and the distribution of benefits with application to Mexico Lecture 7: Problems with empirical measurement with application to Mexico Lecture 8: Beyond economics: An interdisciplinary perspective

2. Outline • Types of goods: common pool resources • Tragedy of Commons • Prisoner’s Dilemma • Collective action (Ostrom 1990) • Mexican forestry policy • Profile of Mexican community forestry

3. Models of natural resource problems • Tragedy of commons • Prisoners’ Dilemma • Olson’s Logic of Collective Action (1965)

4. Who will provide, use and maintain resource? • Depends on “type” of good: • Is the good excludable? • Is the good rival?

5. THE DIFFERENT KINDS OF GOODS • Excludability • a person can be prevented from using it. • Rivalry in consumption • one person’s use diminishes other people’s use.

6. Common Resources • Tend to be: • Rival • Nonexclusive • Examples: • Fisheries • Water routes • The environment

7. The Free Rider • Arises from the exclusion problem. A free-rideris a person who receives the benefit of a good but avoids paying for it. Each person hopes other will pay for it.

8. Tragedy of the Commons The free rider problem with common resources Common resources tend to be used excessively when individuals are not charged for their usage.

9. Tragedy of the Commons The parable (Hardin 1968): • A herdsman puts his animals on the pasture he uses in common with other herdsmen. Even though signs exist of pasture degradation with overstocking, it is “rational” for each herdsman to add more animals because he gains full benefits of each extra animal while sharing costs of overgrazing with other herdsmen. ….. “Freedom in the commons brings ruin to all.”

10. Free Rider Problem and Common Pool Resources Will anyone have adequate incentive to restrain themselves in the appropriation and provision of common pool resources?

11. Bonnie gets 8 years Bonnie gets 20 years Clyde gets 8 years Clyde goes free Bonnie goes free Bonnie gets 1 year Clyde gets 20 years Clyde gets 1 year The Prisoners’ Dilemma Bonnie’ s Decision Confess Remain Silent Confess Clyde’s Decision Remain Silent

12. Exxon gets $4 Exxon gets $3 million profit million profit Chevron gets $4 Chevron gets $6 million profit million profit Exxon gets $6 Exxon gets $5 million profit million profit Chevron gets $3 Chevron gets $5 million profit million profit A Common-Resource Game Exxon ’ s Decision Drill Two Wells Drill One Well Drill Two Wells Chevron’s Decision Drill One Well

13. Prisoner’s Dilemma • Shows how cooperation breaks down • Noncooperation is dominant strategy • Cannot get to Pareto optimal outcome • Premises: • Narrow view of individuals – one-shot game • Depends on uncertainty regarding others’ actions

14. Olson’s Logic of Collective Action (1965) • Groups do not just form: Unless the number of individuals is quite small or unless there is coercion or some special device to make individuals act in their common interest, rational, self-interested individuals will not act to achieve their common or group interests.”

15. Olson’s Logic of Collective Action (1965) • Premise: • Free rider • Inability to exclude • How form groups: • Individual incentives • Smaller or medium “sized” groups have it easier • External actor like an entrepreneur • Something else

16. Ostrom’s revolution (1990) • How explain institutions that exist (informal and formal rules, customs, norms, laws) that governcommon pool resources • Open access versus common property • Property implies an institution has been created • Not PD game or TOC • Collective action problem: How, when, why institutions emerge and evolve to govern common pool resources?

17. 3 puzzles for collective action • Supply of institutions • How overcome free rider problem? • Credible commitments • How believe that rules will be followed in LR? • Mutual monitoring • Cost to monitors, so will they report?

18. Classical means of collective action:(a) Theory of firm • Entrepreneur realizes an opportunity (supply) • Negotiates contracts with others (supply) • Individuals induced to participate (credible commitments) • Entrepreneur makes a take-it-or-leave-it offer (credible commitments) • Keeps residual profits/losses (supply, credible commitments) • Entrepreneur monitors performance and can fire agents (monitor) • Supply of institutions • Credible commitments • Mutual monitoring

19. Classical means of collective action: (b) Theory of state • Political entrepreneur (supply) • Ruler gets monopoly on protection and use of force • Everyone protected (credible commitment) • People give taxes, labor, resources or else are sanctioned (monitoring, credible commitment) • Ruler gains residuals (credible commitment, supply) • Supply of institutions • Credible commitments • Mutual monitoring

20. Classical Solutions for Common Resource Problems • Property rights (Privatization) • Create a “private” property right for a group • Ex.: Water markets, carbon markets, PES • Regulation (“Leviathan”) • Ex.: Fisheries

21. Alternative assumptions • Think “collective action”: What if all principals and no agents? • Alternative assumptions: • Not a PD game • Appropriation (flow) and provision (stock) problem • More complex games • Assurance, repeated games under uncertainty, establish trust, and sense of community where players signal intention to cooperate  cooperative equilibrium. • No one model of collective action • Multiple scales and levels of analysis • Beyond operational rules • Collective action and constitutional rules • Technology and institutions change

22. Collective Action Problem How, when, why institutions emerge and evolve to govern common pool resources?

23. What look for? • Characteristics of resource and users • Example of coding forms: • Appropriation resource • Location • Operational level • Appropriation subgroups • Operational rules • Organizational inventory • Organizational structure and process • Inter-organizational level

24. Determinants of collective action(from most to least important) • Shared fear of damage if did nothing together • “We are in it together”: most are affected in similar way • “Been here and going to stay here”: most have low discount rate • “Cheap”: Low costs of information, transformation, enforcement • “We can talk”: social capital, reciprocity, trust • Small and stable group

25. Application to Mexican Forestry! • What mean by collective action in forestry in Mexico? • How did this come about? • What are main challenges?

26. Core Community Governance

27. Vertical Integration Profile:Semarnat Permit Data (~2004)

28. Sample Community Forest Characteristics

29. Colonial period 1820-1910 • Spanish displaced people by rewarding people with land grants. • Timber for mining, ship building, fuel to urban areas. • Poor forest regulation • Independence 1821 but no major forestry departments created. • Post-1821 problem: how get investors if land communal and not in land market? Answer: privatize and expropriate from church and indigenous sectors.

30. Colonial period 1820-1910 • Railroads grew a lot. • Land survey companies eventually owned ¼ of national territory • Lands concessioned • Indians lost 90% of their land. • Most law favored investors • Little law regulated forest. • Deforestation blamed on Indians

31. 1910-1940: property but no rights, power • 1930: 920k ha of forest in ejidos • 1940: 6800k (Cárdenas) • 1926 law: introduced parks, bans, some regulation, the permit process, but little changed • Rentismo become entrenched in a negative way, based on unequal partners, conflict and low prices. • No money for enforcement, no money to communities • Quevedo blamed deforestation on Indians and companies; pushed forest conservation above all else; created forestry schools and forestry society; wanted public control.

32. 1940-1960: Concessions granted • Many small private logging companies, very inefficient, local leaders manipulated • 1956: damage assessed by government offices but concluded that there was underproduction due to the inefficiency and lack of planning. • Solution: bans in some places, concessions in others. • Concessions: import substitution, UIEF

33. 1960-1970: Little change • Bans ineffective; experts recommended rational production • 1960 law: allowed “participatory associations” -- association between a buyer and a seller, i.e. the community and some company, to harvest. • Still no money to support program or ministry • Foresters like police, and lots of corruption • Campesinos marginalized • Concessions same as rentismo • Corps in ag ministry argued for grassroots forestry development • Some attempt to create community businesses through INI and ejido credit bank; top down effort that did not have widespread success.

34. 1970-1992: Community forestry • Puebla forestry plan grouped communities and small owners; gave training, slow process of organizationally development and did “better” • Other success: Plan Piloto in QR: • End of concessions • 1986 law: no more concessions, permits to owners, community businesses recognized; first law to have as purpose the welfare of communities. • By 1992 about 40% of commercial production from communities

35. How is Mexican community forestry collective action? • Eventual devolution of rights and abilities over time: • Community rights strengthened • Access to and participation in market increased • Decisionmaking in community: • Collective decisions to invest and manage • Individual decisions to “cooperate” with rules and support enterprise • Embedded within agrarian community system

36. Community Forestry Governance with Specialization

37. How 1992 reforms changed forestry • Privatization of individually-used ag land possible • Cannot privatize land classified as forest. • Procede titling program • Mobility w.r.t. ejidatario rights. • Can form a SPR for work groups. • Plantations a more distinct possibility because allows consolidation of some lands. • Privatized STFs

38. Major challenges • Managerial expertise • Technical expertise

39. State Programs • PRONARE: reforestation • PROCYMAF: institutional capacity, technical assistance • PRODEFOR: About 6500 projects funded, about 4000 of those for management, mainly thinnings, fire prevention, and management plans • PSAH: ecosystem services outside of forestry sector

40. Questions for Mexican Community Forestry Policy • What is role of “community” in future of Mexican policy? • In forestry policy? • Eventual privatization? • More forests to state control/ownership of forest? • Communities as stewards of forests or economic actors?

41. Conclusions • New institutional economics • Common pool resources as a collective action problem • Mexican community forestry • Actor in market • Role in management of forests • Based on local governance • Next lectures: • Application to Mexican community forestry: how is it like a firm? How is it not? • Incorporating power and influence

42. Other games • Repeated PD game • Assurance • Tit for tat

43. Bonnie gets 8 years Bonnie gets 20 years Clyde gets 8 years Clyde gets 5 years Bonnie gets 5 years Bonnie gets 1 year Clyde gets 20 years Clyde gets 1 year Assurance Game Bonnie’ s Decision Confess Remain Silent Confess Clyde’s Decision Remain Silent