Ecosystem Services,Ecosystem Services,Information, and theInformation, and the

Tragedy of the Tragedy of the

Non-commonsNon-commons

Joshua FarleyJoshua Farley

Community Development and Applied EconomicsCommunity Development and Applied Economics

Gund Institute of Ecological EconomicsGund Institute of Ecological Economics

University of VermontUniversity of Vermont

joshua.farley@uvm.edujoshua.farley@uvm.edu

Brief OutlineBrief Outline

What is economics?What is economics? Description of ecosystem servicesDescription of ecosystem services What do we need to know about resources What do we need to know about resources

before we can decide how to allocate before we can decide how to allocate them?them?

Tragedy of the non-commons definedTragedy of the non-commons defined Human behavior and influence on Human behavior and influence on

potential solutionspotential solutions Solutions proposedSolutions proposed

What is Economics?What is Economics?

The allocation of scarce resources among The allocation of scarce resources among alternative desirable ends (within and alternative desirable ends (within and between generations?)between generations?)

What are the desirable ends?What are the desirable ends? What are the scarce resources? What are the scarce resources? (How do people behave?)(How do people behave?) How should we allocate?How should we allocate?

Ecosystem goodsEcosystem goods

Raw materials = ecosystem structureRaw materials = ecosystem structure Timber, fish, minerals, fossil fuels, etc.Timber, fish, minerals, fossil fuels, etc.

Raw materials required for all economic Raw materials required for all economic productionproduction

Energy required for all economic Energy required for all economic productionproduction

Benefits generally privatizedBenefits generally privatized ScarcityScarcity price increase price increase innovation of innovation of

substitutessubstitutes

Ecosystem servicesEcosystem services

Structure generates function= ecosystem Structure generates function= ecosystem servicesservices Life support functions, Nutrient cycling, Water Life support functions, Nutrient cycling, Water

regulation, Climate regulation, Erosion control, regulation, Climate regulation, Erosion control, etc.etc.

Required for all lifeRequired for all life Benefits equally distributedBenefits equally distributed Loss of structure = loss of functionLoss of structure = loss of function Scarcity Scarcity price increase price increase

innovationinnovation

The Problem of Macro-The Problem of Macro-allocationallocation

How much ecosystem structure needed to How much ecosystem structure needed to provide life support functions, how much provide life support functions, how much available for economic production?available for economic production?

Market economy fails to solve this problemMarket economy fails to solve this problem

The Macro-Allocation ProblemThe Macro-Allocation Problem

Market relevant Market relevant characteristics of characteristics of

resourcesresources

ExcludabilityExcludability Excludable resource regimeExcludable resource regime

One person/group can prevent another from using the One person/group can prevent another from using the resourceresource

Necessary for markets to existNecessary for markets to exist Ecosystem goods can generally be made excludableEcosystem goods can generally be made excludable Patents make information excludablePatents make information excludable

Non-excludable Non-excludable No enforceable property rights No enforceable property rights Can’t charge for useCan’t charge for use Some resources non-excludable by nature, including Some resources non-excludable by nature, including

most ecosystem servicesmost ecosystem services

Policy variable (except where impossible)Policy variable (except where impossible)

RivalnessRivalness Rival resourcesRival resources

My use leaves less for you to useMy use leaves less for you to use All ecosystem goods are rivalAll ecosystem goods are rival

Non-rivalNon-rival My use does not leave less for you to useMy use does not leave less for you to use

Inefficient to ration through pricesInefficient to ration through prices

Most ecosystem services are non-rivalMost ecosystem services are non-rival

Information is perfectly non-rivalInformation is perfectly non-rival

Non-rival but congestibleNon-rival but congestible Physical attribute (not a policy variable)Physical attribute (not a policy variable)

How do We Allocate?How do We Allocate?

Allocation MatrixAllocation Matrix

RivalCompetition

Non-rivalCooperation, Markets not

desirable

ExcludableMarkets possible

Non-ExcludableMarkets not possible

Market Good: Ecosystem structure,Fossil fuels, Waste absorption capacity (e.g. SO2)

Tragedy of the non-commons: patented information, e.g. Tamiflu, AIDS medicine

Pure Public Good:Street lights, national defense, most ecosystem services, non-patented information

Open Access Regime:Unowned ecosystem structure, waste absorption capacity (e.g. CO2)

Non-rival, congestible

Club or Toll Good

Marginal Cost to Society of an Marginal Cost to Society of an Additional User for Non-rival Additional User for Non-rival

ResourcesResources

Private property and ecosystem Private property and ecosystem structurestructure

Inefficient: Owner ignores critical Inefficient: Owner ignores critical ecosystem servicesecosystem services

Unjust: Ecosystem services are essential Unjust: Ecosystem services are essential public goods created by nature, destroyed public goods created by nature, destroyed for private gainfor private gain

Unsustainable: Profit maximization may Unsustainable: Profit maximization may still lead to extinctionstill lead to extinction

Example: Brazil’s Atlantic RainforestExample: Brazil’s Atlantic Rainforest

•Ecosystem services of rainforest valued at Ecosystem services of rainforest valued at $2006/ha/year $2006/ha/year •World’s highest biodiversity humid forest World’s highest biodiversity humid forest converted to pasture yielding $20/ha/yearconverted to pasture yielding $20/ha/year•Causes droughts, floods, erosion, biodiversity Causes droughts, floods, erosion, biodiversity loss, microclimate change, etc. loss, microclimate change, etc. •System likely to undergo radical System likely to undergo radical transformationtransformation•Greedy self interest creates invisible footGreedy self interest creates invisible foot

Market ‘solution’Market ‘solution’

Convention on Biodiversity establishes Convention on Biodiversity establishes property rights to genetic informationproperty rights to genetic information

Impact on research in tropicsImpact on research in tropics Impact on human welfare: Avian fluImpact on human welfare: Avian flu Creates another invisible footCreates another invisible foot

•Ecosystem services: COEcosystem services: CO22 sequestration, storm sequestration, storm buffer, waste absorption, nursery for 80% of buffer, waste absorption, nursery for 80% of commercial seafood speciescommercial seafood species•Shrimp: high profit, short livedShrimp: high profit, short lived•Intact mangroves produce more seafood than Intact mangroves produce more seafood than pondsponds•Why convert?Why convert?

•Benefits of conversion go to individualBenefits of conversion go to individual•Benefits of preservation go to local, regional, global Benefits of preservation go to local, regional, global communitycommunity

•Conversion only occurs with private Conversion only occurs with private ownershipownership•Greedy self interest creates invisible footGreedy self interest creates invisible foot

Example: Conversion of Mangrove Example: Conversion of Mangrove Ecosystems to Shrimp AquacultureEcosystems to Shrimp Aquaculture

Private property and the production Private property and the production of information: Inefficientof information: Inefficient

Knowledge improves through use Knowledge improves through use Researchers striving for patents will not share Researchers striving for patents will not share

knowledge, slowing rate of advanceknowledge, slowing rate of advance Resources are misdirected, e.g. eflornithine, Resources are misdirected, e.g. eflornithine,

public goodspublic goods Proliferation of patents slows advance of Proliferation of patents slows advance of

knowledge e.g. medicines, Gates strategy, knowledge e.g. medicines, Gates strategy, trollingtrolling

Scientists will work just as hard for private Scientists will work just as hard for private sector or public sector salary, plus prizessector or public sector salary, plus prizes

Private property the Consumption Private property the Consumption of Information: Inefficient of Information: Inefficient

Creates artificial scarcityCreates artificial scarcity Patent = monopolyPatent = monopoly Leads to underconsumptionLeads to underconsumption

Underconsumption is unsustainable Underconsumption is unsustainable

Alternatives to HCFCsAlternatives to HCFCs Alternatives to carbon based fuelsAlternatives to carbon based fuels Avian flue virus, AIDS drugsAvian flue virus, AIDS drugs

... And patents are unjust... And patents are unjust

Knowledge is cumulative, Knowledge is cumulative, shared heritage of human shared heritage of human kindkind

Raises costs for research Raises costs for research that promotes the public that promotes the public good or serves the poorgood or serves the poor

Golden riceGolden rice

Samuel Slater, “Father of Samuel Slater, “Father of American Industry”American Industry”

Developed countries own Developed countries own 97% of all patents97% of all patents

Countries sized in proportion to royalty payments made to them

The “Tragedy of the Non-Commons”The “Tragedy of the Non-Commons”

Occurs when private ownership is Occurs when private ownership is ecologically unsustainable, socially unjust, ecologically unsustainable, socially unjust, and/or economically inefficientand/or economically inefficient

Any privately owned resource that Any privately owned resource that provides non-rival benefits is likely to provides non-rival benefits is likely to cause this tragedycause this tragedy

How do people behave?How do people behave?

Homo economicusHomo economicus Self interestSelf interest

• Always wants moreAlways wants more• Purely competitivePurely competitive• ““homogenous globules homogenous globules

of desire”of desire” Rational actorRational actor

• What is rational?What is rational?• Are people purely Are people purely

rational, or also rational, or also emotional and spiritual?emotional and spiritual?

How do people behave?How do people behave?

Or are we cooperative, social Or are we cooperative, social animals, concerned about the future animals, concerned about the future that differ across cultures?that differ across cultures? e.g. e.g. H. comunicus, H. comunicus, concern for fairness concern for fairness

and community preferencesand community preferences H. naturalis, H. naturalis, concern for sustainability concern for sustainability

and whole system preferencesand whole system preferences Evidence from neurotransmitters: Evidence from neurotransmitters:

Dopamine and OxytocinDopamine and Oxytocin

SolutionSolution

Social provision and ownership of non-Social provision and ownership of non-rival benefits rival benefits Handshake, not invisible handHandshake, not invisible hand

Common assets trustsCommon assets trusts

Allocation and Ecosystem Allocation and Ecosystem Goods/ServicesGoods/Services

Property rights for unowned or Property rights for unowned or government owned ecosystem goods and government owned ecosystem goods and services given to commons trustservices given to commons trust

Mandate to protect for future generationsMandate to protect for future generations Markets ignore future generationsMarkets ignore future generations

Trust determines how much can be usedTrust determines how much can be used Prices must adjust to supply, since Prices must adjust to supply, since

ecosystem resilience and fecundity cannot ecosystem resilience and fecundity cannot adjust to pricesadjust to prices

What About Global Public Goods What About Global Public Goods from National Ecosystems?from National Ecosystems?

Common asset trust not feasibleCommon asset trust not feasible Global Payments for Ecosystem Services? Global Payments for Ecosystem Services?

More handshake than invisible handMore handshake than invisible hand In-kind compensation, e.g. informationIn-kind compensation, e.g. information

Countries sized in proportion to Forest Loss

Countries sized in proportion to royalty payments made to them

Allocation and InformationAllocation and Information

Public financing of research on Public financing of research on technologies that preserve or provide technologies that preserve or provide public goodspublic goods What percent of inventors are independent?What percent of inventors are independent? Might be supplemented by prizesMight be supplemented by prizes

No patents on publicly financed research, No patents on publicly financed research, or future research that uses itor future research that uses it

Eminent domain applied when necessary Eminent domain applied when necessary

Allocation MatrixAllocation Matrix

RivalCompetition

Non-rivalCooperation,Markets not

desirable

ExcludableMarkets possible

Non-ExcludableMarkets not possible

Invisible Hand

Invisible Foot Handshake or Fist

Fist (government) or Handshake

ConclusionsConclusions

We cannot decide how to allocate until we We cannot decide how to allocate until we understand nature of scarce resourcesunderstand nature of scarce resources

Rivalness is critical to allocationRivalness is critical to allocation Private ownership appropriate for rival resourcesPrivate ownership appropriate for rival resources Common ownership more efficient, just and Common ownership more efficient, just and

sustainable for non-rival resourcessustainable for non-rival resources Solution to “tragedy of the non-commons” is Solution to “tragedy of the non-commons” is

public ownership, government or commons trustpublic ownership, government or commons trust Handshake, fist or invisible hand is question of Handshake, fist or invisible hand is question of

objective analysis, not ideologyobjective analysis, not ideology