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

Brief Outline  What is economics?  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  Human behavior and influence on potential solutions  Solutions proposed

What is Economics?  The allocation of scarce resources among alternative desirable ends (within and between generations?)  What are the desirable ends?  What are the scarce resources?  (How do people behave?)  How should we allocate?

Ecosystem goods  Raw materials = ecosystem structure Timber, fish, minerals, fossil fuels, etc. Timber, fish, minerals, fossil fuels, etc.  Raw materials required for all economic production  Energy 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

The Problem of Macro- allocation  How much ecosystem structure needed to provide life support functions, how much available for economic production?  Market economy fails to solve this problem

The Macro-Allocation Problem

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 (except where impossible)

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  Physical attribute (not a policy variable)

How do We Allocate?

Allocation Matrix Rival Competition Non-rival Cooperation, Markets not desirable Excludable Markets possible Non-Excludable Markets not possible 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

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

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. System likely to undergo radical transformationSystem likely to undergo radical transformation Greedy self interest creates invisible footGreedy self interest creates invisible foot

Market ‘solution’  Convention on Biodiversity establishes property rights to genetic information  Impact on research in tropics  Impact on human welfare: Avian flu  Creates another 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 the production of information: Inefficient  Knowledge improves through use  Researchers striving for patents will not share knowledge, slowing rate of advance  Resources are misdirected, e.g. eflornithine, public goods  Proliferation of patents slows advance of knowledge e.g. medicines, Gates strategy, trolling  Scientists will work just as hard for private sector or public sector salary, plus prizes

Private property the Consumption of Information: Inefficient  Creates artificial scarcity  Patent = monopoly  Leads to underconsumption

Underconsumption is unsustainable  Alternatives to HCFCs  Alternatives to carbon based fuels  Avian flue virus, AIDS drugs

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

Countries sized in proportion to royalty payments made to them

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 is likely to cause this tragedy

How do people behave?  Homo economicus Self interest Self interest Always wants moreAlways wants more Purely competitivePurely competitive “homogenous globules of desire”“homogenous globules of desire” Rational actor Rational actor What is rational?What is rational? Are people purely rational, or also emotional and spiritual?Are people purely rational, or also emotional and spiritual?

How do people behave?  Or are we cooperative, social animals, concerned about the future that differ across cultures? e.g. H. comunicus, concern for fairness and community preferences e.g. H. comunicus, concern for fairness and community preferences H. naturalis, concern for sustainability and whole system preferences H. naturalis, concern for sustainability and whole system preferences  Evidence from neurotransmitters: Dopamine and Oxytocin

Solution  Social provision and ownership of non- rival benefits Handshake, not invisible hand Handshake, not invisible hand  Common assets trusts

Allocation and Ecosystem Goods/Services  Property rights for unowned or government owned ecosystem goods and services given to commons trust  Mandate to protect for future generations Markets ignore future generations Markets ignore future generations  Trust determines how much can be used  Prices must adjust to supply, since ecosystem resilience and fecundity cannot adjust to prices

What About Global Public Goods from National Ecosystems?  Common asset trust not feasible  Global Payments for Ecosystem Services? More handshake than invisible hand More handshake than invisible hand  In-kind compensation, e.g. information

Countries sized in proportion to Forest Loss

Countries sized in proportion to royalty payments made to them

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? Might be supplemented by prizes Might be supplemented by prizes  No patents on publicly financed research, or future research that uses it  Eminent domain applied when necessary

Allocation Matrix Rival Competition Non-rival Cooperation, Markets not desirable Excludable Markets possible Non-Excludable Markets not possible Invisible Hand Invisible FootHandshake or Fist Fist (government) or Handshake

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, government or commons trust  Handshake, fist or invisible hand is question of objective analysis, not ideology