Extractive Reserves as Property Right Regime for

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Extractive Reserves as Property Right Regime for
Biodiversity Conservation in the Brazilian
Amazon Timo Goeschl Danilo Camargo
Igliori Fourth Bioecon Workshop on the
Economics of Biodiversity Conservation Venice 28
August 2003
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Research

• Preliminary efforts presented at the first
  Biecon workshop, Rome, May 2002
• Progress
• 1. Dynamic Hotelling Model, paper presented at
  the Eaere annual conference, Bilbao, June 2003
• (available at https\\www.gruponhaise.com/eaere200
  3/session03.htm)
• 2. Analysis of Property Rights

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Policy problem

• Maintenance of biologically diverse ecosystems
• Land requirements and the opportunity costs of
  non-conversion
• ?critical trade-off for developing countries

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Brazilian answer

• In the 1960s and 1970s
• Development programme
• Road building
• New settlements
• Agriculture and pastureland
• From the 1980s
• Conservation becomes part of the development
  agenda
• New instrument Extractive reserves

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Extractive Reserves

• Objective
• conservation and development in territorial
  spaces of ecological and social importance
• Approach
• Property rights over land and biological capital
  stock held by the federal government.
• Property rights over the flow of NWFP contracted
  out to indigenous community
• Assessment
• Highly ambiguous (Peluso 1992, Allegretti 1994
  versus Andersen et al. 2003, Southgate 1998, and
  others)
• Key problem Competition with plantations
  producing NWFP using preferred production
  conditions

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NWFP competitors

• Plantation
• Owns all assets
• Free choice of technology
• Free choice of stock of biological/genetic
  capital
• Cost dynamics (technology vs. genetic
  depreciation)

• Extractive Reserve
• Owns only outputs and non-biological inputs
• Restricted to technology approved under use plan
• Fixed biological/genetic capital stock
• No cost dynamics

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Can ER work in theory?

• Competition between highly heterogeneous
  producers
• Factors in favour of viable Extractive Reserves
• Spatial aspects market power
• Transportation costs, spatial differentiation
• Intertemporal aspects cost dynamics
• Yield loss dynamics, pesticide, genetic
  improvement
• IO aspects Vertical interactions with
  competitors
• Supply of germplasm to intensive production
• Are these factors sufficient to generate long-run
  positive profits?

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Model

• Positive analysis
• Construct most favourable scenario
• Stylised model of spatial duopolistic competition
  between two heterogeneous competitors
• Heterogeneous dynamics One competitor features
  production cost dynamics of investment and
  depreciation of biological capital
• gt Dynamic Hotelling model
• Assess long-term viability of an extractive
  reserve under this scenario

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Markets for NWFP

• Revenue source for ER
• Commodities Rubber, nuts, oils,...
• Common feature Products produced using a
  biological capital stock
• Market participants
• Extractive reserves
• Plantations / Quasi-plantations

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Horizontal interaction only

• Proposition I
• If biological inputs are priced and relatively
  scarce, then the extractive reserve can sustain
  long-run positive profits.
• Proposition II
• If biological inputs are not priced or not
  relatively scarce and initial production costs
  for plantations are high, then the extractive
  reserve can earn interim positive profits while
  plantation costs converges to limit price at
  which reserve exits.

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Markets for biological inputs

• Relies on cost dynamics of plantation
  ?depreciation of genetic inputs
• Critical issue price of biological inputs
• ER as biological input supplier
• Uses locally abundant biological capital
• Uses local human capital (knowledge)
• Neg. link between market share on NWFP and demand
  for biological inputs

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Vertical and horizontal interaction

• Proposition III
• If the rate of exogenous technological progress
  is low, the reserve will make positive long-run
  profits on both the output and input market.
• If the rate of technological progress is
  moderate, the reserve will make positive long-run
  profits on the input market only.
• Proposition IV
• Vertical interaction is not strictly improving
  reserves welfare position.

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Markets for new NWFP

• NWFP Limited long-run revenue potential
• But evidence of short-run potential through
  temporary monopoly on NWFP market
• Can ER generate sequences of new NWFP?
• Uses locally abundant biological capital stock
• Returns to product search?
• Cost of product search
• Pool of potential products in capital stock

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Evidence
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Development pathways

• Analysis suggests three possible pathways
• (1) Continued production of existing NWFP
• (2) Discovery of new NWFP
• (3) Supply of biological inputs
• Question
• Property rights in place to support pathways by
• generating rents for relevant inputs/outputs?

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Property rights within the reserve

• STATE
• Land Ownership
• Determines the constraints
• over resource exploitation

Long term concession External Monitoring
Use Plan
COMMUNITY Institutional rights over the
exploitation of NWFP within the Reserve's
designated area
Institutional Support Internal Monitoring
Legitimate the community

• HOUSEHOLDS
• Exclusive rights over the exploitation of natural
  resources in individual land plots

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PRs within the reserve Existing NWFP

• Boundaries and population with use rights are
  clearly defined
• Community designs operational rules
• Monitors are the appropriators themselves
• There is an association, which is a local forum
  for conflict resolution
• Governmental authorities do not challenge
  autonomous institutional building.
• Extractive reserves have most of the necessary
  institutional
• characteristics proposed by Ostrom (1990)

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PRs within the reserve New NWFP

• Critical input search activity directed towards
  the discovery of new NWFP with revenue potential.
• Problem
• individuals in the reserves cannot exclude others
  from benefiting potential discoveries
• there are few incentives for putting efforts in
  RD activities
• Also Lack of necessary expertise to carry out
• systematic research and product development.

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PR within the reserve Genetic resources

• Critical input knowledge about
  production-relevant characteristics of the local
  biological capital stock.
• Problem there is currently no mechanism to
  reward information with respect to biological
  characteristics, productive properties and
  resistance to diseases

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PRs in the wider economy
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Discussion
E effective D deficient
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Conclusions

• Three development pathways under ER framework
• PRs supports the extraction of existing NWFP
• Existing NWFP is theoretically viable only under
  highly restrictive conditions
• Conditions generally not fulfilled in reality
• PRs does not support the other two pathways
• Development objectives unlikely to be realised
  under given set of PRs
• Questions Is it feasible to change the PR
  structure to
• enable reserves to pursue the other pathways?