payments for environmental services

My thoughts on Daniel Bromley’s critique (2): Are private property rights a silver bullet for overfishing?

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From the diagnosis that missing property rights drive overfishing it’s only a small step to prescribing property rights to manage fisheries. In his Fisheries article Daniel Bromley criticizes that idea that, in his terms, “Private ownership is necessary and sufficient for socially beneficial stewardship.” He cites an article that investigates the link between catch shares (i.e. ITQs) and stock collapse. The article fits in a sequence of articles that link ‘ownership’ of a resource to ‘stewardship’:

Examining specific cases, Beddington et al. (10), Hilborn et al. (11), Grafton et al. (12), and Griffith (13) argue that rights-based fisheries reforms offer promising solutions. Rather than only setting industry-wide quotas, fishermen are allocated individual rights. Referred to as catch shares or dedicated access privileges, these rights can be manifest as individual (and tradable) harvest quotas, cooperatives, or exclusive spatial harvest rights; the idea is to provide – to fishermen, communities, or cooperatives – a secure asset, which confers stewardship incentives.
Source: Costello et al., 2008, Science

The first author of the article, Chris Costello, explains it as follows in laymen’s terms:

The difference [between rights-based management and other sorts of fisheries policy instruments] is comparable to renting an apartment versus the house you own. […] If you own something, you take care of it – you protect your investment or else it loses value. But there’s no incentive for stewardship when you don’t own the rights to it.
Source: Marine Science Institute, UCSB

The ownership-stewardship link

This link between ownership and stewardship is also made elsewhere in the literature, and it has explicitly been object of research in at least one article that I have seen. The fundamental idea here is that people must have a stake in conservation of natural assets before they support it: if they don’t have a stake in it, why would they care? This idea is also part of the rationale behind many PES schemes, or programs like CAMPFIRE.

Bromley’s arguments against this idea are twofold. First, if the interest rate is very high, the owner of the asset is better off depleting the asset and investing the proceeds in, say, a savings account. Second, other people besides the owner might also be affected by how the owner manages the asset.

To hell with Orange Roughy and the Eiffel Tower!

The reply to the first argument is that interest rates are rarely so high that it becomes optimal to deplete a resource and put the proceeds on the bank. Some species do indeed grow so slowly that leaving them in the ocean would be like leaving your money on a low-interest bank account – you would earn more by withdrawing your ‘money’ from that account and investing it somewhere else. Orange Roughy, with an annual growth rate between 4% and 6%, springs to mind. Most species, however, grow much faster than this. You could also argue that in a well-working market, if it is optimal for the owner to deplete a resource and put the value thus generated on the bank, it would be optimal for society.

But this is probably not a well-working market, and that is how we get to the second argument. People might appreciate natural assets, like fish, for more than just their consumptive value. Economists call this existence value: economic value ascribed to things just for their mere existence, like whales or pandas. But even if you don’t like this concept (it’s debated), you can still argue that living creatures should be preserved for their own sake: call it intrinsic value, or animal rights. All these are considerations why we don’t like leaving natural assets at the mercy of a small group of owners. Imagine how Parisians would react if the Eiffel Tower were sold to the highest bidder, who is allowed to sell it on the scrap market if the steel price is high enough.

But should it be private?

The question, however, is whether we need private property rights to induce stewardship. The Costello paper does not say so explicitly. Other authors do refer to ITQs as a way to privatize ocean resources, and that this is a good thing (but I have to admit I still need to read that book). But making fish resources private property, i.e. making fish stocks the property of a single person or company, is a pipe dream anyway. How do we deal with stocks that cross borders? How do we deal with interactions between species through predation or bycatch? Imagine owners of top-of-the-food-chain stocks getting sued by owners of lower species, just like dog owners are liable for what Brutus does to Fifi.

That’s why I think the whole question is moot. Private property rights – real private property rights, like owning land, or a dog – are nearly impossible to implement in a fishery. Some form of property rights, be it state property, common property, or private property, is necessary but not sufficient. Although most fish resources fall under some form of property regime, many are still overfished; nevertheless, high-seas fisheries, which are as close to open access as it gets, are managed worst of all. If you want people to support conservation, it surely helps to give them a stake in it. However, unlike Zimbabwean farmers, who have little to expect from biodiversity conservation but crop damage and sleeping sickness (which is why CAMPFIRE was developed), fishers do have a stake in good management of fish stocks – regardless of the property rights regime. So why shouldn’t they be good stewards already?

Mapping marine economics (5): Getting the incentives right

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On October 23, 1924, Canada and the United States of America signed their first Halibut Convention. Halibut fishers had long pressed for an international treaty to regulate the fishery, but it had taken a few years before Canada was finally allowed by its former colonial ruler, Great Britain, to sign its own international treaties. It was an important step to prevent overfishing of halibut, because the convention provided for a three-month closed season in winter. After a few years, however, those three months turned out to be insufficient. New fishers had entered the halibut fishery, and many fishers had invested in bigger vessels. So fisheries managers shortened the fishing season to compensate for the increased fishing capacity. What did the fishers do? They bought even bigger boats. Small wonder what the fisheries managers did in response. Around 1990, the Alaskan halibut fishing season comprised no more than a few 24 hour periods, spread over the year. In those few days the fishers caught all the fish they used to catch in nine months. It was a textbook example of what fisheries scientists call a derby fishery.

What went wrong here? No matter the good intentions of the fisheries managers, they overlooked an essential factor in the system they were supposed to manage: human ingenuity. Animals can be inventive (ever seen your cat figure out how to open your fridge?), but humans are champions at this. When fishing days were limited, they bought bigger boats. When boat length was limited, they built wider boats. Human ingenuity has brought us the wheel, the steam engine, the Internet, and the smallpox vaccine, but it has also exaggerated overfishing. So how do we make sure it works only in our benefit?

Enter ITQs (and discards)
In Alaska the policy makers introduced Individual Transferable Quota, or ITQs. ITQs work much like tradable water rights, or tradable pollution permits: the government sets the maximum allowable catch, and ITQ owners have the right to catch (mostly, actually, to land) a share of that maximum. The possibility to trade ITQs allows inefficient fishers to sell their share to more efficient fishers at a price that makes both better off than without the trade. In the Alaska halibut fishery it worked: the derby fishing was over while the catch of halibut remained within limits. ITQs are now all the rage all over the world, as they seem to be the best instrument so far that fisheries scientists have come up with. But that does not mean they are perfect.

The problem is that ITQs limit landings, not catch. Monitoring catch is very difficult unless you send a police officer with every fishing vessel. So instead of monitoring how much fishers catch out at sea, managers monitor how much fish fishers bring to shore, in ports, auctions and so on. But landings are not the same as catch. If you run out of plaice quota while having plenty of sole quota left, you’d be sorely tempted to throw back your catch of plaice and keep your catch of sole. What is being thrown back is called discards. Discards have been in the news lately due to the proposed EU discard ban, for reasons good and bad. Nobody likes throwing away food, and throwing away half the catch of edible fish, as happens in some fisheries, comes across as criminally wasteful. Moreover, discards distort fishery statistics because by definition, they are the difference between catch (which fisheries scientists want to know) and landings (which they actually measure). But let’s not forget that estimates of the survival of discarded fish vary wildly and depend on the type of fishing gear, the species, and how long the fish stays on board before being thrown back into the sea. In other words, not all discarded fish die. Moreover, the quota system is at least as much to blame as the fishers themselves. If you introduce ITQs in a mixed fishery like the Dutch cutter fleet, where fishers catch many different species in one single haul, but you do not consider the ratios in which those species are caught, you are bound to put fishers in a situation where taking your unused quota back to shore seems more of a waste than discarding fish. Perhaps you say it is wrong to discard fish. Well, it is also wrong to steal a bike, but that doesn’t mean you shouldn’t lock yours.

There is no panacea
The bottom line is that fisheries management does not manage fish – it manages people. So to do it properly you need to understand how people think, how they make their decisions, and why. This holds not only for fisheries management, but also for other ecosystems where human activity is a key player, like rangelands. Coastal ecosystems are rarely untouched by humans, because by definition they are located where people are most likely to settle first; they are also important holiday destinations. So to manage mangrove ecosystems you need to consider how, why, when, and where shrimp farmers cut, pollute, or otherwise degrade mangroves. To manage coral reefs you need to understand how, why, when, and where clumsy divers do the most damage.

The research in this domain has provided us with innovative policy instruments like ITQs, TURFs (territorial use rights for fishers), and PES (payments for ecosystem services). What these instruments have in common is that each was once hailed as the answer to all the problems in marine and coastal management, and that each turned out not to be. Every medicine has side effects; there is no panacea. What is needed is the right medicine for the right situation.

So what do I do?
This year I had a paper in Ecological Economics on policy instruments to manage transgenic maize – not exactly a marine topic, but still an example of how applied economic models can give quantitative insights into the effectiveness and efficiency of policy instruments. My contribution to this year’s EAERE is about certification as an instrument to nudge fishers in a more sustainable direction. In BESTTuna we analyze, among others, how instruments like ITQs and Vessel Day Schemes can manage Pacific tuna stocks. I have been involved in the supervision of Diana van Dijk, who investigates the performance of multiannual quota and limits on adjustment of quota in a volatile fishery with costly capital adjustment.

And there is still plenty to do. The debate on ITQs and PES is far from over, and there are plenty of questions on how to consider human behavior in the design of policy instruments. There is a theme session on modelling human behavior coming up at this year’s Annual Science Conference of the International Council for the Exploration of the Sea (ICES), which I organize together with Jan-Jaap Poos of Wageningen IMARES and Olivier Thebaud of CSIRO. One of the more difficult, and therefore more interesting, questions is how we include institutions and social norms in our analyses: can we model it? Or should we leave it to other social sciences that have better, qualitative tools to analyze these issues?

Yes, sometimes I agree with the critics of PES – but not always

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Richard Conniff puts some question marks over PES in this piece. Most of it draws from an earlier article by Kent Redford in Conservation Biology, so let me go over the arguments laid out (rephrased in my own words – hoping I get it right) in this article. Be prepared: I actually agree with most of it, although I wholeheartedly disagree with some of it.

PES risks crowding out moral justifications for conservation
This is a risk. The risk is similar to the risk associated with social cost-benefit analysis, namely that the difference between monetised costs and benefits will become the only decision criterion so that non-economic arguments lose their voice in the political debate. This was the case when the USA (under Reagan) adopted its notorious Executive Order 12291, which stated that “Regulatory action shall not be undertaken unless the potential benefits to society for the regulation outweigh the potential costs to society.” No wonder this put a stop to a lot of environmental policy, the benefits of which are most difficult to quantify. So yes, we should keep reminding our students, including economics students, that money is not the only argument in public decisions.

Pro-PES conservationists wrongly believe that all ecosystem services are good
Let me add to that: they even believe ecosystem services are good enough, i.e. good enough to justify conservation. But ecosystem services might not be good enough, and in that sense pro-PES conservationists should be careful what they wish for. But there the article makes an interesting statement (and now I do quote):

Nevertheless, not all ecosystem processes sustain and fulfill human life. Processes such as fire, drought, disease, or flood work against this goal, yet they are vital for ecosystem function, structuring landscapes, and providing vital services and regulatory functions to nonhumans. There is a danger that an economically driven focus on those “services” that are valuable to humans in their nature, scope, and timing may lead to calls to “regulate” ecosystem services to times and in flows that match human needs.

I would like to see Mr Redford explain to Zimbabwean farmers why they should learn to live with themselves, their children, and their cattle getting sick or even dying from sleeping sickness. I’m sure tse tse flies are valuable for some reptile species I should have heard of, but in this case my sympathy is with Homo Sapiens.

Some services may be better provided by species with nasty side-effects
Of course you should take into account nasty side effects, and then the outcome may be that you should still, or should not, use that exotic turbo species to provide the service. Indeed, you may not know the side effects, so precaution is mostly warranted in such cases.

PES may become an incentive to engineer ecosystems towards service provision, which may have nasty side effects
See above. Engineering an ecosystem towards provision of a single service can indeed increase the ecosystem’s brittleness, like monoculture is efficient on the short term but very vulnerable to disease on the long term.

The methods currently used to establish monetary value are problematic
Tell me about it: the economic literature is rife with reasons why putting a price tag on nature can go wrong. But here is another interesting quote from the article:

Where markets do exist, the value of the services from different ecosystems will not reflect their diversity, but their desirability to human consumers.

Now we get to the hidden assumption made by a lot of biologists: ecosystem value = ecosystem diversity. This is a gap between biology and not just economics, but all of social science: social scientists argue that ‘value’ is, well, a value judgement – something that cannot be established objectively, period. Conservationists like to say we should preserve nature because it has ‘intrinsic value’, but what they should really be saying is that they think, or feel, or find that nature has intrinsic value. I hate to say this, but nature having intrinsic value is not a fact; it’s an opinion. A very valid opinion, but there are many others in this whole conservation debate and the way it is being pushed by conservationists smacks of a dictatorial sort of self-righteousness.

PES can have terrible repercussions for (mostly poor) locals
Absolutely. One of the driving forces of deforestation is that nobody knows who owns the forest: is it the state, is it the logging company, or is it the native tribe living in it? Assign any of these three the property rights over the forest and this new rightful owner has the right to exclude all the others. And he will do so, especially when there is money to made! The new allocation may be efficient according to our economics textbooks but it may come at the price of unimaginable social disruption in the lives of local communities.

Property rights may not be able to deal with climate impacts
The argument is like this: if you assign property rights over some species to some owner, this owner may have a strong incentive to stop the species from wandering off when its climate zone starts shifting. Of course, in a well-working market, this owner would be better off buying land elsewhere to let his species neatly follow the change in climate zones, blah blah blah. But land markets are notorious for their institutional problems. Land use regulations, spatial externalities, transaction costs, and all kinds of other problems will throw sand in the machine. This is an interesting issue I hadn’t thought of before. It reflects an interaction between institutional-economic problems and ecological dynamics I might want to look deeper into.

One on the house: paying people not to do nasty stuff
I didn’t find the argument in the article, nor in Conniff’s piece, but it is a problem: a lot of PES is actually paying people not to be nasty. For instance, Conniff gives an example of Vittel-Nestlé paying farmers to not pollute the environment. But pollution is a negative externality: it is a cost imposed by farmers on Vittel. Paying farmers to stop polluting may solve Vittel’s problems on the short term, but it still artificially boosts the farming sector to a size bigger than optimal. The whole world might be better off with farmers doing their business in places where they do less damage, but this solution will actually draw farmers to this area: they get paid not to pollute, what more do you want?

PES is a neoliberal sellout of our democracy to big business
Of course I save the best for last: it is the remark made by the man I would love to see in a cage fight with James Delingpole. Of course I am talking about George Monbiot:

When governments and PES proponents talk about employing marketplace solutions instead of traditional regulatory approaches, [Monbiot] says, “what they are really talking about is shrinking democracy, shrinking public involvement in decision making, shrinking transparency and accountability. By handing it over to the market you are in effect handing it over to corporations and the very rich,” and to “a very plutocratic” decision-making process.

There you have it: more market inevitably means less democracy. Of course, everybody knows you can only have a fully functional democracy under socialism, isn’t it?

My two hands, I mean cents, on Monbiot’s anti-valuation rant

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I am happy to say that James Delingpole and George Monbiot make my toes cringe in equal measure (don’t you think they even look alike?). Whether it’s about the leftist conspiracy to strangle the economy with cap-and-trade or the neoliberal commodification of our athmosphere by cap-and-trade, I always find it difficult to reach the end of their writings with the same blood pressure as when I started reading them.

This time it’s Monbiot who writes yet another econophobic rant against Payments for Ecosystem Services: pricing nature is wrong, PES is just a slippery slope towards privatisation of nature, without markets we wouldn’t be in this situation in the first place, blah blah blah.

Tim Worstall writes a rebuttal of Monbiot’s piece in The Telegraph (indeed, Delingpole’s home newspaper) where he makes two major points:

  1. If we didn’t try to estimate the value of nature in monetary terms, it would be priceless, which in today’s world means worthless (and hence, defenceless);
  2. It’s not the establishment of property rights, but their absence that is driving overexploitation of natural resources. Monbiot’s rejection of private property rights takes us back to the days when nature was a free-for-all, with all the depletion and extinctions that come with it.

Worstall’s second point is very valid, and I’m glad somebody is making it (although I doubt it convinces George “markets are evil and governments are saints” Monbiot). His first point, however, raises two question marks, making me feel somewhat like the proverbial two-handed economist.

On my left hand, I admit (albeit grudgingly) that Monbiot has a point: there are more reasons to preserve nature than just its contribution to the economy. It’s the classical dichotomy between utilitarian and deontological ethics: Worstall uses utilitarian arguments (show how important nature is and people will more likely preserve it), whereas Monbiot argues that it is simply morally right to preserve nature, because it has a value in itself regardless of how highly humans value it.

On my right hand (call it my Delingpole hand if you like), arguments like Worstall’s first point make me suspicious. Too much research in this matter is being done to “raise awareness”, “wake up the politicians”, or something like that. It makes for terrible, politically biased science that accepts any wild guess as long as it gives a big number. People still seem to believe the global ecosystem is worth $33 trillion, although any serious economist can tell you that this number as well as the method used to arrive at it (and, indeed, the sheer idea of calculating a total value of the entire ecosystem) is nonsensical: economist Michael Toman called it “a serious underestimate of infinity.” Moreover, when you price nature you should be aware that it may turn out not to be that valuable: perhaps it is still sensible to cut that forest and build a hospital instead. This is of course the outcome that folks like Monbiot dread; on the other hand, the folks who use the “raise awareness” argument gloss over it, or worse.

The bottom line is that economic valuation of ecosystem services is best done in the context of a concrete, well-defined policy question. Pricing nature improves that decision-making by making values visible that would otherwise be ignored, in a way that makes them comparable to goods and services that do have a market price. Prices can never tell the entire story (this is where I agree with Monbiot), but it is a laudable goal to make the cost-benefit analysis as complete as possible (which is where I agree with Worstall). But whatever you do, “raising awareness” is just about the worst reason to do it.