Ecosystem Services, Information, and the Tragedy of the Non-commons Joshua Farley Community Development and Applied Economics Gund Institute of Ecological Economics University of Vermont

What is Economics?  Economics is the allocation of scarce resources among alternative desirable ends  Ecosystem services are increasingly scarce  We hope information will solve the problem  Does the market economy effectively allocate ecosystem services and information?

Outline of Presentation  Description of ecosystem services  What do we need to know about resources before we can decide how to allocate them?  Tragedy of the non-commons defined  Solutions proposed

Ecosystem goods  Raw materials = ecosystem structure Timber, fish, minerals, fossil fuels, etc. Timber, fish, minerals, fossil fuels, etc.  Required for all economic production  Benefits generally privatized  Scarcity  price increase  innovation of substitutes

Ecosystem services  Structure generates function= ecosystem services Life support functions, Nutrient cycling, Water regulation, Climate regulation, Erosion control, etc. Life support functions, Nutrient cycling, Water regulation, Climate regulation, Erosion control, etc.  Required for all life  Benefits equally distributed  Loss of structure = loss of function  Scarcity  price increase  innovation

Market relevant characteristics of resources

Excludability  Excludable resource regime One person/group can prevent another from using the resource One person/group can prevent another from using the resource Necessary for markets to exist Necessary for markets to exist Ecosystem goods can generally be made excludable Ecosystem goods can generally be made excludable Patents make information excludable Patents make information excludable  Non-excludable No enforceable property rights No enforceable property rights Can’t charge for use Can’t charge for use Some resources non-excludable by nature, including most ecosystem services Some resources non-excludable by nature, including most ecosystem services  Policy variable

Rivalness  Rival resources My use leaves less for you to use My use leaves less for you to use All ecosystem goods are rival All ecosystem goods are rival  Non-rival My use does not leave less for you to use My use does not leave less for you to use Inefficient to ration through prices Inefficient to ration through prices Most ecosystem services are non-rival Most ecosystem services are non-rival Information is perfectly non-rival Information is perfectly non-rival  Non-rival but congestible

How do We Allocate?

Allocation Matrix Rival Non-rival ExcludableNon-Excludable Market Good: Ecosystem structure, Fossil fuels, Waste absorption capacity (e.g. SO 2 ) 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. CO 2 ) Non-rival, congestible Club or Toll Good

Private property and ecosystem structure  Inefficient: Owner ignores critical ecosystem services  Unjust: Ecosystem services are essential public goods created by nature, destroyed for private gain  Unsustainable: Profit maximization may still lead to extinction

Example: Brazil’s Atlantic Rainforest Ecosystem services of rainforest valued at $2006/ha/yearEcosystem services of rainforest valued at $2006/ha/year World’s highest biodiversity humid forest converted to pasture yielding $20/ha/yearWorld’s highest biodiversity humid forest converted to pasture yielding $20/ha/year Causes droughts, floods, erosion, biodiversity loss, microclimate change, etc.Causes droughts, floods, erosion, biodiversity loss, microclimate change, etc. Greedy self interest creates invisible footGreedy self interest creates invisible foot

Ecosystem services: CO 2 sequestration, storm buffer, waste absorption, nursery for 80% of commercial seafood speciesEcosystem services: CO 2 sequestration, storm buffer, waste absorption, nursery for 80% of commercial seafood species Shrimp: high profit, short livedShrimp: high profit, short lived Intact mangroves produce more seafood than pondsIntact mangroves produce more seafood than ponds Why convert?Why convert? Benefits of conversion go to individualBenefits of conversion go to individual Benefits of preservation go to local, regional, global communityBenefits of preservation go to local, regional, global community Conversion only occurs with private ownership Conversion only occurs with private ownership Greedy self interest creates invisible footGreedy self interest creates invisible foot Example: Conversion of Mangrove Ecosystems to Shrimp Aquaculture

Private property and information  Unsustainable Global warming and research on alternative energy Global warming and research on alternative energy Profit driven research ignores non-excludable life support functions Profit driven research ignores non-excludable life support functions  Inefficient: Creates artificial scarcity Creates artificial scarcity Patent = monopoly Patent = monopoly Research ignores public goods Research ignores public goods E.g. AIDS medicine, Eflornithine E.g. AIDS medicine, Eflornithine

... and unjust  Knowledge is cumulative, shared heritage of human kind  Raises costs for research that promotes the public good or serves the poor  Example: Golden rice  Samuel Slater, “Father of American Industry”  Developed countries own 97% of all patents

The “Tragedy of the Non-Commons”  Occurs when private ownership is ecologically unsustainable, socially unjust, and/or economically inefficient  Any privately owned resource that provides non-rival benefits

Solution  Social provision and ownership of non- rival benefits  Society determines supply (CO2, SO2, endangered species, parks, fisheries, life support functions of forests, etc.)

Allocation and Ecosystem Goods/Services  Macroallocation socially determined  Prices must adjust to socially determined supply, since ecosystem resilience and fecundity cannot adjust to prices

Allocation and Information  Public financing of research on technologies that preserve or provide public goods What percent of inventors are independent? What percent of inventors are independent?  No patents on publicly financed research, or future research that uses it  Eminent domain applied when necessary

Conclusions  We cannot decide how to allocate until we understand nature of scarce resources  Rivalness is critical to allocation Private ownership appropriate for rival resources Private ownership appropriate for rival resources Common ownership more efficient, just and sustainable for non-rival resources Common ownership more efficient, just and sustainable for non-rival resources  Solution to “tragedy of the non-commons” is public ownership  Socialism or capitalism is question of objective analysis, not ideology