Time Preference and Natural Resource Use by Local Communities: The Case of Sinharaja Forest in Sri Lanka

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August 2007

ERDECONOMICS AND RESEARCH DEPARTMENT

Working PapeSERIESNo.1

H. M. Gunatilake, W.A.R. Wickramasinghe,and P. Abeygunawardena

Time Preference and NaturalResource Use by LocalCommunities: The Case

of Sinharaja Forestin Sri Lanka

Time Preference and NaturalResource Use by LocalCommunities: The Case

of Sinharaja Forestin Sri Lanka

00


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ERD Wring Paper N. 100

Time Preferenceand naTural resource useby local communiTies:

The caseof sinharaja foresTin sri lanka

h. m. GunaTilake, W.a.r. WickramasinGhe,and P. abeyGunaWardena

auGusT2007

H. M. Gunatilake is a Senior Economist at the Economic Analysis and Operations Support Division, Economics and

Research Department, Asian Development Bank; W.A.R. Wickramasinghe is a Graduate Student at the Amsterdam

Institute or Metropolitan and International Development Studies, University o Amsterdam, The Netherlands; andP. Abeygunawardena is a Principal Energy Economist at the South Asia Regional Department, Asian Development

Bank.


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www.adb.org/economics

2007 by Asian Deveopment BankAugust 2007

ISSN 1655-5252

The views expressed in this paper

are those o the author(s) and do notnecessariy reect the views or poicies

o the Asian Deveopment Bank.


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FoREWoRD

The ERD Working Paper Series is a orum or ongoing and recenty competedresearch and poicy studies undertaken in the Asian Deveopment Bank or on

its beha. The Series is a quick-disseminating, inorma pubication meant tostimuate discussion and eicit eedback. Papers pubished under this Seriescoud subsequenty be revised or pubication as artices in proessiona journasor chapters in books.


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CoNtENts

Abstract vii

I. INTRODUCTION 1

II.II. NONTIMBER OREST PRODUCTS HARVESTING AND OREST CONSERVATION 2

III. ESTIMATION O III. ESTIMATION O INDIVIDUAl RATE O TIME PREERENCE 3

A. Estimating the Individua Rate o Time PreerenceA. Estimating the Individua Rate o Time Preerence 4 B. Eicitation Question 5

IV. HPOTHESES AND MODEl SPECIICATIONIV. HPOTHESES AND MODEl SPECIICATION 6

A. Determinants o IRTPA. Determinants o IRTP 6 B. Socioeconomic Determinants o NTP Harvesting 8

V. SAMPlING, DATA COllECTION, AND MEASUREMENT O VARIABlES 1V. SAMPlING, DATA COllECTION, AND MEASUREMENT O VARIABlES 10

VI. RESUlTS AND DISCUSSION 1VI. RESUlTS AND DISCUSSION 12

VII. CONClUSIONS AND POlIC IMPlICATIONS 1VII. CONClUSIONS AND POlIC IMPlICATIONS 17

Appendix 1 Sampe Distribution 1Appendix 1 Sampe Distribution 18 Appendix 2 Data Used to Deveop Market Incorporation Index 19 Appendix 3 Tests or Muticoinearity 20 Appendix 4 Test or Simutaneity and Contemporaneous Cross Correation 21

Reerences 2Reerences 22


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AbstRACt

Empirica studies on the impact o the individua rate o time preerence(IRTP) on natura resource use are scarce. This paper investigates the impacto IRTP on orest resources harvesting rom the Sinharaja Man and BiosphereReserve in Sri lanka. The impact o IRTP on the harvest rate o orest resources

was tested using a simutaneous equation mode. Anaysis o the determinants oIRTP shows that the base vaue and age o the respondents negativey inuencethe IRTP whie risk perception positivey inuences the IRTP. More importanty,

ow income induces a higher IRTP, indicating that poverty is an importantdeterminant o the IRTP. urther, the resuts show that individuas with a higherrate o time preerence harvest more orest resources. Overa, the resuts suggestthat ong-term strategies or management o nature reserves woud require poverty

aeviation in the periphera communities, among other measures.


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I. INtRoDUCtIoN

An individuas preerence or current over uture consumption, caed the rate o time preerence

or the rate o discount,1 is an important topic in economics. The generay hed perception is thata higher rate o time preerence typicay acceerates natura resource harvesting and depressesinvestment or sustainabe natura resource management. Higher discount rates2 aso reduce the

weights attached to the needs and desires o uture generations. Thereore, a higher rate o timepreerence is viewed as a cause o depetion o natura resources and an obstace to conservation.With this perception in mind, many environmentaists have suggested the use o ower discountrates or evauation o natura resources and environmenta projects.

This idea o using ower discount rates in natura resources and environmenta projects isnot new. Discussions on adjustment o the discount rate or conservation o the stock o naturacapita, both in exhaustibe and renewabe resources, have persisted since the 1930s (isher and

Krutia 1995). Pigou (1932) may be the frst to point out the need to use ower discount ratesin the case o management o exhaustibe resources (quoted in isher and Krutia 1995). Earywritings in natura resource economics consistenty showed that a higher rate o discount eads to

excessive use o natura resources. or exampe, see discussions by Hoteing (1931) or exhaustiberesources and Cark (1973) or renewabe resources. In recent times, there has been renewed interestin the argument or using a ower discount rate. or exampe, Weitzman (1994) argues or ower anddecining discount rates or ong-term beneft-cost anaysis, or a variety o economic reasons. He

urther argues (Weitzman 1998) or the owest possibe discount rate or discounting the distantuture. More recenty, the use o a ow discount rate in the Stern Report (Stern 2006) to estimate

the cost o cimate change has stimuated a heated debate on the impact o discounting on naturaresources and the environment.

Despite its persistence or a ong time, the caim that a ower discount rate is desirabe ornatura resource conservation has not been universay accepted by economists. or exampe, isherand Krutia (1995) argue that an arbitrary reduction o the socia discount rate is ikey to resut in

more rapid extraction and wasteu use o natura resources. The mass baance principe, describedby Ayres and Kneese (1969), aso shows that high discount rates discourage more natura resourcesuse than ow discount rates do. arzin (1984) shows that the discount rate has an ambiguous

eect on the depetion period o an exhaustibe resource under two situations (i) backstop priceis a unction o the rate o time preerence; and (ii) production is capita-intensive. Bute and vanSoest (1996) expain that under the circumstance o restricted suppy (due to existence o timber

concession contracts), depeting the primary stock o orests impies buiding a stock o secondary

1 Time preerence is defned as the margina rate o substitution between current and uture consumption (Becker andTime preerence is defned as the margina rate o substitution between current and uture consumption (Becker and

Muigan 1997). We use the terms rate o time preerence and discount rate interchangeaby, as did Pouos andWhittington (2000), Godoy et a. (1998), Becker and Muigan (1997), and Oson and Baiey (1981).

2 In day-to-day decisions, peope appy their time preerence. In order to reect this practice o use o time preerence,In day-to-day decisions, peope appy their time preerence. In order to reect this practice o use o time preerence,

uture costs and benefts are discounted in project anaysis. The socia discount rate is aso inuenced by the opportunitycost o capita. See Zhuang et a. (2007) or a good discussion on the theory and practice o discounting.


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orests. When this happens, as they argue, the impact o the rate o time preerence on the primaryorest stock is ambiguous. Price (1991) aso caims that owering the discount rate may actuay

promote short-term expoitation o orests.

Most o the above caims on the impact o time preerence on natura resource use are basedon theoretica modes/arguments. When theory does not show cear direction o a reationship,

empirica work may pay an important roe. However, empirica work that verifes the reationshipbetween time preerence and rate o natura resources use is imited. This ack o empirica testson the impact o the rate o time preerence on natura resource harvesting is more signifcantin deveoping countries where some o the important resources such as tropica rain orests are

ound. It is aso important to note that most o the peope iving near such resources are eitherpoor or extremey poor. Their surviva oten depends on continuous avaiabiity o such resources.In this study, we examine the reationship between individua rate o time preerence (IRTP) and

the harvest o orest resources by oca communities.

Among the ew empirica studies that attempted to estimate IRTP in deveoping countries,Pouos and Whittington (2000) use data on mortaity reduction in Arica, Eastern Europe, and Asia.

Hoden et a. (1998) measure IRTP in Indonesia, Zambia, and Ethiopia using a stated preerencesurvey. Reddy (1995) estimates IRTP using durabe energy carrier choices in urban Indian househods.Pender (1996) estimates the IRTP o rura viagers in southern India and reates this to creditmarkets. Whie these studies have estimated IRTP or various purposes in deveoping countries, the

work o Godoy et a. (1998) is the ony study that we know o that has estimated IRTP in deveopingcountries in reation to orest resource use. Godoy et a. estimate the IRTP o periphera viagerso Boivian rainorests and reate it to the cearance o od growth orests. Their fndings suggest

that a higher IRTP is associated with ess deorestation, which is contrary to common perception.Against this background, the objective o the present study is to test whether an individua witha higher rate o time preerence harvests more orest resources, specifcay, nontimber orest

products (NTP). Our fndings show that individuas with a higher rate o time preerence harvestmore orest resources.

The rest o the paper is organized as oows. The second section discusses the importanceo NTP in managing protected rain orests and their contributions to poverty reduction. The third

section describes the use o the survey method in eiciting the IRTP in the case study area o theSinharaja orest. The ourth section presents the detais o mode specifcation and hypotheses o thestudy. The fth section describes the study area, samping, and data coection. Section six discussesthe resuts o the study, and the fna section presents concusions and poicy impications.

II. NoNtImbER FoREst PRoDUCts HARVEstING AND FoREst CoNsERVAtIoN

Nontimber orest products incude a variety o products such as ood (ruits, vegetabes, yams,green eaves); game animas; medicina pants; and raw materias or cottage industries (such asbamboo, rattan, resins, sugary saps). In the past, orest managers ocused ony on managing timber

resources and, in eect, ignored the other orest products used by oca communities. Work by Peterset a. (1989), de Beer and McDermott (1989), Panayotou and Ashton (1992), Godoy et a. (1993),and Gunatiake (1995), among other studies, showed the signifcance o NTP in sustaining rura

iveihoods and their potentia roe in the protection/destruction o bioogica diversity.

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time PreferenceAnd nAturAl resource usebylocAl communities: thecAseof sinhArAjA forestinsri lAnkA

h. m. gunAtilAke, W. A. r. WickrAmAsinghe, And P. AbeygunAWArdenA


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section iii

estimAtionof individuAl rAteof timePreference

loss o biodiversity is a cause or goba concern. The major poicy response o deveopingcountries to this growing concern has been to designate more ands as protected areas (Ghimire

1994). There are more than 8,500 protected areas in the word today, which cover about 800 miion

hectares o and. A arge portion o these protected areas is ocated in deveoping countries. Athoughdeveoping countries have aocated orest and or protection, oten due to various pressures romoca and internationa interest groups, management o these sites has not been successu. One o

the major probems aced in the management o protected areas in deveoping countries is resourceuse by oca communities (Gunatiake 1998). or exampe, resource use by oca communities is amajor cause o the oss o cosed canopy orests in Asia, rather than the commercia extraction o

timber, as traditionay perceived (Word Bank 1993).

orest and cearance or agricuture by oca communities accounts or part o the destructiono natura orests. Once the boundary o a protected orest is we estabished, orest cearing or

agricuture becomes ess easibe whie NTP extraction may continue (Gunatiake and Chakravorty2002). orest resource use by oca communities is important due to a number o reasons. irst, oca

communities have the cosest physica contact with orests and have been using orest resources orgenerations. Second, oca communities are adversey aected by resource use restrictions imposed

by conservation projects (Gunatiake et a. 1993, Wes 1992, Panayotou 1994, Gunatiake 1995 and1998, Shyamsundar and Kramer 1996). Third, oca communities extract most o the NTPs or theirsurviva rather than or commercia uses. ourth, there is a mismatch between what is considered asbenefts rom conservation by oca communities and by conservationists. inay, oca communities

may have itte or no incentive or conservation because the benefts o rainorest conservationargey ow to nationa and goba eves due to associated externaities (Tisde 1995). Thereore,better understanding o the interactions between protected orests and rura communities iving

around them is crucia or the successu impementation o conservation projects.

Harvesting orest resources by oca communities, as generay perceived, may be ecoogicay

ess destructive compared to cear eing o a orest or timber. However, there is continuing debateon the conditions necessary or sustainabe harvest o nontimber orest resources and the extentto which such NTP use aects conservation (Wes 1992, Homma 1992, Hanson 1992, Browder1992, Godoy et a. 1995, Simpson 1995). Most o the assertions on the impact o orest resourceuse by oca communities on bioogica diversity in the present debate are derived rom ogica

arguments and historica reviews. Gunatiake (1998) argues or reduction o the dependency on NTPas a conservation strategy. Given scientifc uncertainties, practica difcuties, and the high costo ecoogica monitoring required to ensure the sustainabe use o NTP by oca communities, he

proposes the reduction o dependency through rura deveopment activities. This is seen as a morepragmatic and cost-eective approach to orest protection.

III. EstImAtIoN oF INDIVIDUAl RAtE oF tImE PREFERENCE

In this paper, we estimate the IRTP using a stated preerence survey among the peripheraviagers o the Sinharaja Man and Biosphere Reserve in Sri lanka. We use a simpe discounted utiity

mode that is commony used as the theoretica ramework in estimating the IRTP. This mode isadopted rom Oson and Baiey (1981) and Pouos and Whittington (2000) and modifed sighty torepresent the study context.

erd WorkingPAPer seriesno. 100


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A. Eiaing he Individua Rae f tie Preference

Consider a representative viager iving in the periphery o a protected orest. Assume thatthe individuas utiity unction has one argument, which represents a composite commodity C.

U w U C t tt

T

= = ( )0 (1)

where T is the panning horizon o the individua, wt is the discount actor, and Ct is the consumptionat time t. We assume that utiity is increasing at a decreasing rate with C, ietime utiity is

additivey separabe, and the utiity unction is stabe over time. The discount actor is a unctiono pure time preerence rand time t.

w=f(r,t)t (2)

Consider two distinct time periods, 0 and T. Assume that the consumption eve or a the periodsexcept or time 0 and T are constant. At the individuas point o indierence between marginachanges in consumption on the periods 0 and T

dU U C dC f r T U C dC T T

= + =( ) ( , ) ( )0 0

0 (3)

(4)

The right hand side o equation (4) shows how the individua trades o current and utureconsumptions in order to keep his/her utiity constant. The rate at which uture and current utiitiesare traded is equa to the discount actor. The discount actor is a unction o the pure rate o time

preerence, r, and the intertempora margina rate o substitution. The second component representsdiminishing margina utiity o uture consumption arising due to uture income increases (Osonand Baiey 1981).

Defne(5)

In order to adapt the above genera case to NTP harvesting, assume that the utiity unction

ony has the NTP income as an argument. Assume a viager is aced with a choice o NTP incomein two time periods, 0 and T. We can rewrite the utiity unction more precisey as,

(6)

I the individua is indierent between NTP income eves I0 and IT, the choice can berepresented as

(7)

Tota dierentiation o (7) provides

(8)

Rearranging the above resuts in

dC

dCf r T

U C

U CT

T0

0

= ( , )( )

( )U = constant

1

1 0( )( , )

( )

( )+=

rf r T

U C

U CTT

T0U = U(I , I)

T0

U(I ,O) = f(r,T) U(O,I)

T0 U(I) I + f(r,T) U(I) I = 00 T

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I

If r T

U I

U IT

T0

0

= ( , )( )

( ) (9)

Using the resuts o (5) and soving equation (9) or rprovides

(10)

Equation (10) shows that the IRTP can be estimated, i one can fnd the uture income eve

(IT) and current income (I0) that can keep the individuas utiity constant. Stated preerence surveyquestions can be designed to eicit the indierence between a given current eve o income anda uture eve o income.

b. Eiciain Quein

loewenstein and Preec (1992) identiy our anomaies that commony occur in eiciting theIRTP using stated preerence questions common dierence eect, absoute magnitude eect,gain-oss asymmetry, and deay speed-up asymmetry. Preerence between the two consumptionadjustments shoud depend on the absoute time interva separating them. This is known as the

stationarity property.3 Vioation o the stationarity property is known as the common dierenceeect. Empirica studies on IRTP show that arge money vaues suer ess proportiona discountingthan do sma amounts. This eect is known as the absoute magnitude eect. Another behavior

observed in previous studies is that osses are discounted at a ower rate than gains. This anomayis known as the gain-oss asymmetry. inay, the preerences o the intertempora choices areasymmetric or speed-up or deaying consumption. When raming an eicitation question or IRTP,one needs to consider the above our anomaies.

In our study, we frst conducted a survey on NTP harvesting by househod. Whie the surveywas going on, the quantities o NTP harvested were input into an Exce spreadsheet, which isprogrammed to provide the tota vaue o NTP. Then we asked the oowing eicitation question

rom the respondent

The orest Department (D) has decided to competey stop NTP coection in theSinharaja orest or one year to aow recovery o the orest. D wi make a payment

to each househod in order to compensate or ost NTP income during this year. Thepayment is equa to ast-years vaue o NTP. our ast-year NTP income is (I0) andyou wi receive this amount rom D or not coecting NTP rom Sinharaja during the

next year. However, due to administrative probems, the payment may be deayed. Howmuch do you want the D to pay you i the payment is made exacty ater one year rom

the due date? (IT).

The question was repeated with dierent deaying times (years 1, 2, 3, 5, 10, and 15).

With this eicitation ormat, every individua gets a question with a dierent base vaue sinceNTP income varies across househods. These dierent base vaues aow us to isoate the impact o3 Deaying consumption rom year 1 to 5 shoud have the same impact as year 5 to 10. However the empirica studiesDeaying consumption rom year 1 to 5 shoud have the same impact as year 5 to 10. However the empirica studies

show dierent time preerences in these types o cases despite the act that absoute dierences are the same.

section iii

estimAtionof individuAl rAteof time Preference

rI

I

T

T

=

0

1

1



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absoute magnitude eect by incorporating the base vaue as an expanatory variabe in the equation

or determinants o IRTP. Varying time deays are used in the eicitation ormat to account or thecommon dierence eect. We estimated the IRTP or each individua or the above six dierent timedeays and took the average vaue as the IRTP o that individua in our anaysis on the impact o

IRTP on NTP harvesting. However, the other two anomaies identifed by loewenstein and Preec(1992) were not addressed by our eiciting ormat.

One reason or our inabiity to account or gain-oss asymmetry is the difcuty invoved in

interpreting the above ormat as a gain or oss. Coection o NTP is aways subjected to someuncertainty and invoves aborious work. Thereore, viagers may consider that payment made bythe D, equivaent to NTP vaue, as a gain. On the other hand, peope coect a variety o productsrom the orest and this variety adds diversity to their ives. Certain NTP may not have substitutes

in the market. In that case, the above ormat may be interpreted as a oss, rather than a gain.Moreover, the next year may provide more NTP due to natura uctuations. In that case, incomebased on this years NTP vaue may impy a oss. Despite this difcuty to interpret whether the

above eiciting ormat represents a gain or a oss, we attempted a dierent ormat to represent aoss. In that ormat, the eiciting question was ramed stating that the househod shoud pay thevaue o coected NTP to the D to represent a oss. In the pre-testing stage we understood thatthe question was too sensitive and peope did not accept the scenario that they shoud pay or

the resources, which they have been using or generations. Pretesting indicated a arge proportiono scenario rejection. Thereore, the eicitation ormat deveoped to represent oss o income wasdropped.

Accounting or the speed/deay anomay was aso tried. However, it was et that too manyo these questions conuse the rura househods. Respondent atigue was observed during thepretesting with dierent ormats in a sequence with the same respondent. Based on the ocus groupdiscussions and experience o pretesting, the above ormat was seected as the best eiciting ormat.

One potentia probem with our eicitation ormat is the hypothetica nature o the question. Manyresearchers such as Pender (1996), Hoden et a. (1998), and Pouos and Whittington (2000) haveestimated IRTP vaues in deveoping countries with hypothetica questions. In order to avoid the

hypothetica nature probem, actua payments were made by some researchers (or exampe, Godoyet a. 1998, and Gunatiake and Chakravorty 2002). We did not attempt to use actua paymentsbecause our budget was inadequate to make such payments. Moreover, in actua payment studies,time deays wi have to be imited to a ew days or weeks, or practica reasons. I time deays

are imited to a ew days or weeks, the researcher woud not be abe to account or the commondierence eect.

IV. HYPotHEsEs AND moDEl sPECIFICAtIoN

A. Deerinan f IRtP

In this study we test two sets o hypotheses. The irst set o hypotheses anayzes the

determinants o IRTP. Tabe 1 presents the variabes incuded in the IRTP equation and the expectedreationships.

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section iv

hyPothesesAnd model sPecificAtion

Table 1Variables usedin Time Preference model

Variable exPecTed relaTionshiP

Base vaue (X1) NegativeRespondents education (X2) Negative

Tota househod income (X3) Negative

Respondents age (X4) Negative

Risk perception (X5) Positive

(i) Base Value.As mentioned earier, base vaue is incuded as an expanatory variabe inorder to account or the absoute magnitude eect. There is a tendency to discountuture incomes at ower rates when the sums invoved are arge (loewenstein and Preec

1992). The study by Benzion et a. (1989) aso shows that the IRTP is inversey reated

with the base vaue. Thereore, we assume that the rate o time preerence is negativeyreated with the base vaue.

(ii) Level o Education. Education aciitates peope to imagine the uture vividy. Educatedpeope have a better appreciation o uture utiity or benefts. Moreover, the eve o, the eve o the eve oeducation is assumed to increase income and consequenty reduce poverty. Thereore,education reduces impatience, eading to ower rates o time preerence (Becker and Muigan

1997). It is hypothesized that IRTP is negativey reated to the eve o education.

(iii) Household Income. It is caimed that peope who have higher income eves possess a ower

rate o time preerence than those with ower income eves (Becker and Muigan 1997).low-income groups are expected to be more impatient due to the great need or providingor current consumption as we as due to ack o se-contro and oresight. Hausman

(1979), Reddy (1995), and Hoden et a. (1998) show consistent empirica evidence onthe negative reationship between income and IRTP. The Pouos and Whittington (2000)study, however, does not show a strong reationship between IRTP and income. In thisstudy we hypothesize income to be inversey reated to IRTP.

(iv) Age. The eect o age on the rate o time preerence is ambiguous. It is argued that oderpeope have a ower rate o time preerence than younger peope due to the impatienceo the young. Counter arguments suggest that oder peope tend to consume more atpresent than in the uture due to the uncertainty o iving onger. However, the need

or eaving bequests prevents the aged rom possessing extremey high IRTP (Boardmanet a. 1996). According to Becker and Muigan (1997), the younger and the oder havesimiar rates o time preerence. In this study, we assume that the rate o time preerence

is inversey reated with the age o the respondent.

(v) Risk Perception. When the peopes existence, prevaence o simiar preerence or consumptionin the uture, and avaiabiity o benefts in the uture are uncertain, peope perceive

that they woud not be abe to consume in the uture. As a resut, they tend to havea higher IRTP. According to Oson and Baiey (1981), uncertainty can aect positiveyor negativey the IRTP and it is to a arge extent an empirica matter. They argue thatrisk aversion and absence o insurance markets or most goods may pay a roe in the



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determination o IRTP. Hoden et a.s resuts (1998) show that risk-averse peope tend

to have ower discount rates. In this study we assume that individuas perception onrisk and IRTP are directy reated.

b. sciecnic Deerinan f NtFP HarveingThe second set o hypotheses anayzes the socioeconomic determinants o NTP harvesting in

which the IRTP is one argument. Gunatiake (1998) and Gunatiake and Chakravorty (2002) havestudied the determinants o NTP extraction previousy in the same study area. Our main objectiveis to study the impact o IRTP on NTP harvesting, rather than determinants o NTP harvesting.

However, anaysis on the determinants o NTP harvesting is repeated in this study in order to avoidspecifcation errors due to omitted variabes in the second equation. Tabe 2 provides a summaryo the variabes and anticipated reationships.

Table 2Variables usedin nTfP harVesTinG equaTionand exPecTed relaTionshiPs

Variable exPecTed relaTionshiP

Rate o time preerence (1) Positive

leve o education (X2) Negative

Agricutura income (X6) Negative

Other income (X7 ) Negative

amiy size (X9) Positive

Distance to orest (X10) Negative

Maeemae ratio (X11) Positive

Index or market incorporation (X12) Positive

(i) IRTP. It is caimed that the greater the rate o time preerence, the higher is the rate oresource use. Persons with high rates o time preerence are more impatient comparedto those with ow rates o time preerence. The more impatient persons extract moreresources at present reative to ess impatient persons. Gunatiake and Chakravorty (2002)

show, using a theoretica mode, that viagers with a higher time preerence harvestmore NTP. In this study, we assume a positive reationship between IRTP and quantityo NTP harvested.

(ii) Level o Education. As pointed out by Anderson (1992), NTP harvesting requires oweves o capita and aso brings ow economic returns. There is evidence indicatingthat higher wages in the rura community resut in ess dependency on orest resources

(Bustone 1995, Duoumaud et a. 1995, Kerkviet and Nebesky 1997, Gopaakrishnanet a. 2005). Higher education enabes earning higher wages. Moreover, individuas withhigh opportunity costs o abor show ess interest in orest extraction reative to thosewith ow opportunity costs. Thereore, eve o education is assumed to be inversey

reated to the quantity o NTP harvested.

(iii) Agricultural Income. Gunatiake and Chakravorty (2002), using a mode o competitivetime aocation between orestry and agricuture, show that higher agricutura prices

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ead to the harvesting o decreased quantities o NTP. Agricutura income is a proxy

or agricutura prices. Thereore, in this study we hypothesize that agricutura incomeis inversey reated to NTP harvesting.

(iv) Nonagricultural and Nonorest Income. Assume that a househod aocates its tota avaiabe

time among orest-gathering activities, agricuture, and other economic activities. Themore time it aocates or other economic activities eaves ess time avaiabe or orest-resource harvesting and agricuture. In such a competitive time aocation ramework, the

dependency on the orest is assumed to decrease with the avaiabiity o income romother sources (Gunatiake and Gopaakrishnan 2002). As peope become rich with highereves o other income, they tend to veer away rom subsistence economic activitiessuch as gathering NTP and shiting cutivation (Godoy and Bawa 1993, Gunatiake et

a. 1993, Godoy et a. 1995). Moreover, working or nonagricutura and nonorest incomeoccupies the peope throughout the year, which eaves ess or no time or orest-resourcegathering activities (Gunatiake 1998). Thereore, it is hypothesized that income other

than rom agricuture and orestry is inversey reated to NTP harvesting.

(v) Extent o Homestead. Homestead is supposed to be an aternative source or orestproducts because it has the potentia o providing orest products such as ue wood,

greens, spices and some vegetabes, yams, etc. Thereore, it is hypothesized that NTPharvesting is inversey reated to the extent o homestead.

(vi) Family Size. I a amiy has more members, it needs extra income to support extra subsistence

requirements. On the other hand, arger amiies may have more abor avaiabe or orestresource gathering. Hence, arger amiies can aocate more abor or NTP harvesting inorder to uf additiona requirements (Gunatiake and Gopaakrishnan 2002). Accordingy,we hypothesize that NTP harvesting is directy reated to amiy size.

(vii) Distance to the Forest. Househods residing cose to the orest require ess time to reachNTP sources, compared to those residing ar away. In previous studies, Gunatiake (1998)

and Gunatiake and Chakravorty (2002) show a negative reationship between NTPharvesting and distance to the orest. In this study, we aso hypothesize that distanceto the orest is inversey reated to NTP harvesting.

(viii) MaleFemale Ratio. Composition o the NTP varies rom site to site. Depending on thetradition o division o abor and composition o NTP, the maeemae ratio can havea positive or negative reationship with NTP gathering. In the Sinharaja area, maesseem to be invoved in many orest-based activities. Among the orest-based activities

in the study area, maes generay carry out Kithu4 tapping, trapping and hunting widanimas, coecting materias or weaving baskets, and coecting ood items. Consequenty,a amiy with more maes is supposed to extract more orest products reative to a amiywith ew maes. Thereore, it is hypothesized that NTP harvesting is directy reated to

the maeemae ratio in a amiy.

(ix) Market Incorporation. Integration o remote viages with outside markets through betterinrastructure may aect NTP harvesting in dierent ways. One argument is that outside

markets provide many opportunities or income-generating activities. Thereore, marketincorporation reduces dependency on orest resources. Browder (1992) and Godoy and

4 The ower o the Kithu pam tree is tapped or its sugary sap.The ower o the Kithu pam tree is tapped or its sugary sap.

section iv

hyPothesesAnd model sPecificAtion



20/47

Bawa (1993) assert that peope iving ar away rom markets may depete orest resources.

A counter argument is that when rura communities are inked with outside markets, itprovides avenues or harvesting NTP or commercia purposes. Compared to subsistenceuses, commercia uses may ead to the harvesting o more NTP and ead to quicker orest

resource depetion. In this study, we hypothesize that the rate o orest resource harvestingis directy reated to the integration o rura communities with outside markets.

The above-described two sets o hypotheses were tested using two regression equations or

IRTP and NTP harvesting. The dependent variabe in the IRTP equation is an independent variabein the NTP equation. This may cause simutaneity bias i these equations are estimated as singeequations. A coser ook at the equations shows that they represent a recursive system. However,the simutaneity test (Hausman test) indicates the presence o simutaneous bias. Thereore, we

estimated the equations as a system. We used order and rank conditions as described by Greene(2000) to identiy the equation and our anaysis shows that equations are overidentifed. Thereore,we used two-stage east squares method to estimate the equations simutaneousy.

V. sAmPlING, DAtA CollECtIoN, AND mEAsUREmENt oF VARIAblEsThe Sinharaja Man and Biosphere reserve is a owand rainorest ocated in southern Sri lanka.

The bioogica richness o Sinharaja has drawn the attention o the nationa and internationacommunity. It was decared as a Man and Biosphere Reserve in 1978 by the United Nations Educationa,Scientifc and Chidrens Organization, which aso recognized the Sinharaja as a Word Heritage Site

in 1988. The Sinharaja is the ony remaining reativey arge (11,000 hectares) and ess disturbedowand tropica rainorest in Sri lanka. Nine o the 15 oristic regions in the country are ocatedin the Sinharaja. Ninety-fve percent o the endemic birds and 70% o the endemic woody pants

are said to exist in the Sinharaja (Gunatieke and Gunatieke 1980). There is a consideraby argeorest-dependent community iving around the orest. McDermott et a. (1990) have identifed 223pant species, which are o some use to viagers. The bioogica richness and the ong-asting

orestrypeope interactions existing in the Sinharaja, thus make it an idea site or empiricaverifcation o the hypotheses described earier in this paper.

The property right o a orest resource aects the IRTP o resource users. or exampe, Hardinstragedy o the commons (1968) occurs in an open-access situation and that the impied IRTP

in this situation is infnite (Pender 1996). The government owns the Sinharaja orest and NTPextraction was egay prohibited by eary egisation. The Sri lanka orestry Sector Master Pan(Ministry o orestry and Environment 1995) recommended aowing oca communities to use NTP

rom protected orests in Sri lanka. Since then the D adopted a enient attitude toward NTP useby oca communities, though it does not activey promote the use o NTP in the Sinharaja. TheD issues permits or tapping Kithu trees in the orest. There are a number o nongovernmentaorganizations working in the area promoting the marketing and processing o some NTP and cottage

industries using NTP. Other projects invove enrichment panting o seected NTP in the buerzone o the orest with community participation. Given a these activities in the community, someorm o community management regime or orest resources seems to be evoving. Thereore, a de

acto open-access extractive reserve, oten deveoped with government ownership, does not prevai

in the Sinharaja orest.

The study was conducted in periphera viages o fve orest patches newy added to the

Sinharaja protected area. They are Dewaa and Waankanda orests in Ratnapura district, Runakanda

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section v

sAmPling, dAtA collection, And meAsurementof vAriAbles

orest in Kautara district, Deawa orest in Gae district, and Diyadawa orest in Matara district.

In seecting the sampe, socioeconomic profes were prepared or 17 Gramasevaka (GS) divisions(owest administrative unit in Sri lanka) adjoining the seected orest patches using rapid ruraappraisa methods. The tota number o orest-dependent househods in these GS divisions was

identifed to be 1,909 in the 17 GS divisions. A sampe o 180 orest-dependent househods (9.4%)was seected rom the popuation. The sampe was stratifed using the GS divisions. The numbero househods per GS division was determined by considering the proportion o orest-dependentamiies in the GS division. Random number tabes were used to seect the predetermined number

rom orest-dependent househods o each GS division. Appendix 1 provides the detais o thesampe distribution.

A member o each househod who is mainy responsibe or househod decisions was interviewed.

The survey was conducted in May, Juy, and August 2000. The questionnaire was pretested and anumber o ocus group discussions were hed beore conducting the survey. The inormation coectedincuded socioeconomic data such as age, education eve o the respondent, tota househod

income, number o amiy members, nontimber orest product extraction during the ast year, andthe respondents persona perception o risk or extraction o resources rom the natura orest.

Peope extract dierent kinds o products rom the orest. The NTP harvesting equation or

each product invoves a arge number o regression equations. Since the househods coect dierentcombinations o products, there are no adequate data points to estimate a regression equation oreach product. This motivated us to aggregate dierent NTP to a singe quantity index. The quantityindex or coected goods was prepared by using the oowing ormua

Qp .x

P-

j=1....kij jj=1

k

=

,

(11)

where Qi is the quantity index o NTP or the ith househod and is the average price o theNTP.

Pp .x

x

i=1.....n, j 1...ki=1

nij ij

j=1

k

i=1

nij

j=1

k

=

=

,

(12)

Cacuation o the NTP quantity index requires prices o a the orest species gathered by theviagers. Some NTPs enter the market exchange process whie other NTPs never enter the market.

The atter category is pure subsistence NTP or which market prices do not exist. The presence osubsistence orest commodities poses a probem in their vauation. This study vaues NTP usingorest gate prices as the base oowing Godoy et a. (1993) and Gunatiake et a. (1993). Whena product does not have a orest gate price, but does have a price at a nearby town, such prices

were used to vaue NTP ater deducting the cost o transport and opportunity cost o time. I the

product is transported manuay, ony the opportunity cost o time was deducted rom the marketprice. When a product does not have a price both at the viage and nearby town, the price o

a cose substitute was used as a proxy. Certain NTPs have neither prices (in the viages or innearby towns) nor cose substitutes. In such cases, the contingent vauation method was used tovaue these NTPs. Ony ew products a into this category and an open-ended wiingness-to-payquestion was asked rom randomy seected individuas to fnd the vaues.

erd WorkingPAPer seriesno. 100 11


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The eve o education o each househod was aso ranked according to attainment. The owest

rank (1) was or no schooing and the highest rank (7) was or peope with university degrees.When the househod income data were coected, the annua income o every amiy member (exceptseparatey iving members) was incuded. This comprises agricutura income and nonagricutura

income (wage abor, Kithu tapping in nonorest ands, cinnamon bark processing, brick making,carpentry, etc.). Risk perception was measured according to the respondents answer to the questionHow ong do you think you can coect NTPs rom the Sinharaja orest? I the individua eesthat he/she can harvest NTPs or a ong period in the uture, risk perception was inerred to be

ow. Risk perception was ranked (16) according to the inverse o the ength o time period. Amarket incorporation index was prepared based on the same approach used by Gunatiake (1998) ina previous study. The components o the index are distance to the nearest town; waking distanceto get a bus; requency o bus transport to the viage and other aciities avaiabe in the viage,

such as cooperative shop, schoo, a subpost ofce, medica center, and rura bank (see Appendix2). The inormation regarding avaiabiity o these aciities in each GS division was coected romthe Grama Niadhari (Viage Headman) o the division.

VI. REsUlts AND DIsCUssIoN

Out o 180 observations, 175 were incuded in the anaysis. ive observations were excudedrom the sampe due to inconsistent answers to the IRTP eicitation question. The estimated IRTPvaues or dierent time periods are given in Tabe 3. According to the resuts, the viagers discount

uture consumption at an average rate o 24%. This is above the existing market rate o interestor bank oans (18.5%). This higher rate can be party due to the existing poverty o the peopeengaged in orest products coection. Aso, the ranges suggest that under each category o deayin consumption, there is a arge variation. As shown in igure 1, the IRTP vaues show a cear

trend o decine with the increasing deayed time periods. This trend is due to the existence o thecommon dierence eect. Horowitz (1988) and Benzion et a. (1989) have aso ound a simiarpattern o decining IRTP with increasing deayed time periods.

Table 3esTimaTed raTesof Time Preference

consumPTion delay (years)

1 10 1

Average 0.34 0.30 0.28 0.23 0.16 0.13

Standard deviation 0.19 0.16 0.14 0.11 0.08 0.06

Maximum 0.90 0.92 0.71 0.55 0.59 0.38

Minimum 0.03 0.03 0.03 0.00 0.00 0.00

The behavior o the IRTP over dierent income groups is aso depicted in igure 1. During thefrst three years, the highest IRTP vaues are shown by the second owest income group ($520781),whie the highest income group (> $1,823) hods the owest IRTP over the years. Generay, the resuts

indicate that IRTP decines when income increases. Every income group behaves amost simiary invauing uture benefts over time when consumption is deayed by dierent time periods. urther,

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section vi

resultsAnd discussion

igure 1 indicates that the gaps o IRTP among income groups become narrower when the deayed

time period increases. The reason or this behavior may be the decining abiity to imagine uturebenefts or costs when they occur in the ar distant uture (Becker and Muigan 1997).

0.5

0.4

0.3

0.2

0.1

0

FIGURE 1

CHANGES IN AVERAGE IRTP FOR DIFFERENTINCOME GROUPS

1 2 3 4

Consumption delays (years)

Shareoftotalemployment(percent)

US$520781US$1,3121,823

< US$520US$7811,312US$1,823

Documents

Time Preference and Natural Resource Use by Local Communities: The Case of Sinharaja Forest in Sri Lanka