Division of Resource Economics / 401 Institutional Resource Economics III: Institutions of Sustainability Konrad Hagedorn Humboldt University Berlin Division of Resource Economics Philippstrasse 13, Berlin, Germany Phone: , Fax: DAAD Workshop on: “Developing Multi-level and Decentralized Implementation Capacity for Natural Resource Management and Environmental Policies: a contribution to polycentric governance in an emerging democracy“, Kiev, September 7-11, 2009

Division of Resource Economics / 40 What is IOS? Two main types of systems are in a permanent process of interaction: natural and social systems Due to new technologies, increasing population and economic growth, human impact on eco-systems threatens to destroy our resource base This should draw our attention to “sets of rules” (= constraints) that we can, and actually do, impose on our interaction with nature This is what we call “Institutions of Sustainability” 2

Division of Resource Economics / 40 Interacting Social and Ecological Systems Systems at different scales : AE = Agro-ecosystemFS = Farming System LS = LandscapeC = Community WS = Watershed S = Society Ecosystem Social System Eco-system functions Natural capital : Soil, Water, Biodiversity... LS WS AE FS C S Social capital Human capital Physical capital Human use,impact Transactions & transformations I n s t i t u t i o n s 3

Division of Resource Economics / 40 Subarenas Scales ·International (EU / World) ·National ·Regional ·Local, etc. Action situations Action arenas Properties of transactions Transactions Characteristics of actors Types of governance Types of rules Fields ·Land, soil ·water, flood ·air, climate ·biodiversity ·GMO, etc. Actors Institutions Governance Structures Institutions of Sustainability Institutional innovation Institutional performance 4

Division of Resource Economics / 40 Properties of Transactions Related to Natural Systems Excludability of actors, rivalry among users, asset specificity - opportunistic behaviour, separability - jointness of production, decomposability – non-engineered systems, frequency of transactions, complexity and diversity, mobility and irreversibility Example: heterogeneity and variability are distinct properties of ecosystems used by agriculture and forestry. This makes standardised coordination and regulation ineffective and inefficient. Solution: devolution of management 5

Division of Resource Economics / 40 ► Transaction Cost Economics: asset specificity, uncertainty, frequency of transactions ► Additional properties of transactions to be taken into account by institutional analysis in nature-related sectors: ► Jointness and absence of separability, coherence and complexity, limited standardisability and calculability, dimensions of time and scale, predictability and irreversibility, spatial characteristics and mobility, adaptability and observability, etc. ► Example: Nitrogen fertiliser use or pastoral systems include transactions that affect other actors in various ways, due to the interconnectedness of natural systems. More Properties of Transactions than in Transaction Cost Economics 6

Division of Resource Economics / 40 Characteristics of Actors Involved in Agri-environmental Co-ordination Values and beliefs of actors and their attitudes, reputations for trustworthiness, resources for influencing rule-making, capacities for acquiring, processing and using knowledge; asymmetric information, actor’s method of action selection: maximising, bounded rationality, fallible learners Example: Social context and embeddedness of actors in communities is crucial for crafting and using rules for resource management (e.g., in irrigation, fishery, pastoral systems, protected areas) 7

Division of Resource Economics / 40 Institutions and Property Rights on Nature Components First differentiation of property rights on nature components: many types of rights such as access, extraction, management, exclusion, alienation rights, etc. exist Second differentiation property rights on nature components: The types of rights are more and more separately defined for ecological properties of a piece of nature Example: Pollens from GMO crops 8

Division of Resource Economics / 40 Governance Structures for Sustainable Resource Use Some sustainability issues require decentralised governance (protected areas), others highly centralised governance (plant genetic resources – CBD), and often we see combinations. polycentricity and diversity Result: polycentricity and diversity Markets Hierarchies Hybrid, e.g. cooperation Multi-level systems Combined types Co-production 9

Division of Resource Economics / 40 [1][1] See also E. Ostrom’s proposal on conceptually decomposing social-ecological systems in Section 6.3. Polycentric Governance (Definition by Ostrom School) ’ ‘Polycentric’ connotes many centers of decision making that are formally independent of each other. … To the extent that they take each other into account in competitive relationships, enter into various contractual and cooperative undertakings or have recourse to central mechanisms to resolve conflicts, the various political jurisdictions in a metropolitan area may function in a coherent manner with consistent and predictable patterns of interacting behavior‘ (V. Ostrom, Tiebout, and Warren 1961: 831). 10

Division of Resource Economics / 40 THANK YOU for your attention! Institutional Resource Economics III: Institutions of Sustainability (IOS) 11