2013 Cambridge Business & Economics Conference ISBN : 9780974211428 Cambridge Business and Economics Conference (CBEC) Cambridge, June 2013 Externalities in natural resource management in the context of stakeholders interaction Anna Bartczak, University of Warsaw, Faculty of Economic Sciences, Warsaw Ecological Economics Center, Poland Anna Czarczyńska, Kozminski University, Poland Communicating author email: czarczynska@alk.edu.pl ABSTRACT Classic economic theory states that the economy can cause additional effects on third parties. Such externalities can be negative or positive and if there are present the social welfare is not maximized. Nowadays the scarcity of natural resources causes numerous problems in the area of public governance. However, economic sciences have developed a number of different tools to improve social welfare when externalities are present. At this paper we focus on forest externalities and social responsibility for payments for ecosystem services to private forest owners in Poland. Key words: externalities, institutional analysis, natural resource management, payments for ecosystem services 1. Introduction Participatory decision making of all stakeholders is crucial to sustainable forest management. In basic cost-benefit analysis externalities are generally ignored, however environmental and social effects should be incorporated in quasi market modeling participatory context. In the case of externalities of natural resource management, prices in a competitive market do not reflect the full costs or benefits of producing or consuming resources. This also implies July 2-3, 2013 Cambridge, UK 1 2013 Cambridge Business & Economics Conference ISBN : 9780974211428 that environmental externalities cannot be solved by competitive markets instruments only. Mutual understanding of interests and some collective solution are needed to compensate affected parties, or to pricing public benefits of natural resources. In our analysis we adopt an institutional analysis approach to examine questions related to market based mechanisms, included pricing of externalities (payments for ecosystem services, PES) in the area of natural resource management such as forest. We define institutions as the rules modeling human behavior, assigning roles to different actors and structuring their relations and interactions. Other actors are the players of the game, with a limited capacity to ”set the rules”. The set of relevant actors is delineated by a particular ecosystem and the nature of the problem, although it may involve outsiders of the ecosystem if their decisions affect its management. First of all we would like to identify actors (individual and collective) relevant for the creation and implementation of market-based mechanisms in natural resources management, understanding their roles and the patterns of interactions emerging between them. The possible lack of compatibility between market approach and actors interests can be identify on the field of institutional analysis We believe that enhanced understanding of parties complementarities and contradictions contributes to improved design and performance of market based management mechanisms. Natural resources can be analyze also as a public goods, so we try to determine stakeholders on the basis of their attributes such as: resources (actor’s access to stocks of capital, labour, knowledge, technology, time, and social influence); individual preferences (what actors want to achieve); information-processing capabilities (the way actors acquire, process and use information); and selection process (selection criteria actors use in decision-making process). The main objective of this paper is to investigate who should pay for two forest externalities such as biodiversity and recreation in private forest in Poland. To answer this question we conducted the survey consisting of 1000 observation. To explain differences in the respondents’ opinions on who should pay for environmental services we used a multinomial logit model (MNL) with background variables (socio-demographics, variables describing forest visitation patterns and variables showing the respondents’ NEP profile). The aim of the article is to derive suggestions and recommendations to policy- and decisionmakers concerning the use of market-based mechanisms for internalizing resource July 2-3, 2013 Cambridge, UK 2 2013 Cambridge Business & Economics Conference ISBN : 9780974211428 management externalities and to provide insights into the most adequate design of such mechanisms. The institutional analysis is complemented by the analysis of the buyers’ opinions regarding who should pay for the provision of ecosystem services. 2. Methodological background Natural resources like air, water and mostly forests are not naturally restricted to and for usage, however they can be used by many individuals or institutions. So such common ressources or common pool resources (CPR), can be overused by different technologies and institutional regimes. So the involved actors decide to establish an institution with rules for usage of the resource. Institutions we define as the “rules of the game” which shape human behaviour by giving rise to social practices, assigning roles to different actors and structuring their relations and interactions (Ostrom 2007). Institutions, therefore, differ from actors and organisations that are the “players” of the game, with a capacity to act upon their interests. Institutional analysis sheds light on the sources of a possible mismatch between Market Based Mechanisms design rules, actors’ interests, and other existing policies for natural resource management. Enhanced understanding of their complementarities and contradictions contributes to improved design and performance of these mechanisms and helps policymakers develop successful instruments. Figure 1. Analytical framework for the institutional analysis (Polski and Ostrom 1999) In the analysis an institutional analysis approach was adopted, to examine questions related to Market Based Mechanisms design and performance. Particularly, we rely on the institutional analysis and development framework (Polski and Ostrom 1999) and its variations for the analysis of social-ecological systems, as well as on the conceptual framework developed for July 2-3, 2013 Cambridge, UK 3 2013 Cambridge Business & Economics Conference ISBN : 9780974211428 the study of the role of institutions in global environmental change (Young 2005), further refined for PES analysis by Corbera et al. (2009). The study is structured in interdependent analytical blocks such as ecosystem CPR, actors interactions; institutional interplay; and institutional design and performance. The nature of ecosystem CPR addressed by an MBM, the interactions between actors involved in or affected by the mechanism as well as the interaction between different institutions surrounding it determine the design of the scheme and the outcomes it produces. Therefore, any effort addressed at assessing the performance of market-based schemes must involve not only an evaluation of actual outcomes, but also a profound analysis of interactions leading to these outcomes. Actor interactions (individuals and organizations) is relevant for the design and implementation of market-based mechanisms, the understanding of their roles, responsibilities, preferences, resources and the patterns of interactions emerging between them. The set of relevant actors is delineated by a particular ecosystem and the nature of the problem, although it may involve actors located outside of the geographic boundaries of the ecosystem if their decisions affect its management. This block heavily relies on the techniques of stakeholder analysis (Grimble and Wellard 1997; Grimble 1998), which studies stakeholders on the basis of their attributes. Four actor attributes can be identified (Ostrom et al. 1994; Polski and Ostrom 1999): Resources (actor’s access to stocks of capital, labour, knowledge, technology, time, and social influence; Individual preferences (what actors want to achieve); Information-processing capabilities, (the way actors acquire, process and use information); Selection process (the selection criteria actors use in decision-making process). The resources that different actors or groups of actors possess determine their relative strength vis-à-vis their counterparts, and endow them with the capacity to establish or change rules, or act in accordance to the existing rules to satisfy their individual preferences. The informationprocessing capabilities of actors and the decision-making criteria they follow determine the July 2-3, 2013 Cambridge, UK 4 2013 Cambridge Business & Economics Conference ISBN : 9780974211428 extent to which individual and group interests can be matched and opportunistic behaviour can be prevented or overcome. All these attributes are particularly sensitive to the socioeconomic, political and institutional setup in which interactions occur (Polski and Ostrom 1999). 3. Description of the survey This survey was a part of the NEWFOREX project (New Ways to Value and Market Forest Externalities, 7th Framework Programme, European Commission). The survey was carried out by the professional polling agency in December 2011. Data was collected through a national online survey of the Polish population. The final sample was quota-controlled for sex, age, region and agglomeration size. A total of 1,000 interviews were collected. The main part of the survey was dedicated to nonmarket valuation of forest externalities. However, in this paper we just analyze just respondents opinions concerning who should pay for forest externalities provided by private forests. Respondents were asked the following question: “Around 20% of Polish forests are privately owned. The government considers an implementation of two programs aimed on improving the biodiversity and recreation conditions at these forests. Could you tell, who in your opinion should be responsible for financing such programs?” They could choose the answer among the following ones: USERS should pay the forest administration for this service PRIVATE FOREST OWNERS: laws and rules should ensure the forest owner provides this service free of charge and carries the cost of its increased provision CENTRAL BUDGET: society should pay forest owners for increasing the provision of this service. Cost should be carried by the entire Polish population through some form of tax or similar LOCAL BUDGETS: society should pay forest owners for increasing the provision of this service. Cost should be carried by the local population through some form of tax or similar July 2-3, 2013 Cambridge, UK 5 2013 Cambridge Business & Economics Conference ISBN : 9780974211428 To explain differences in the respondents’ opinions on who should pay for environmental services we used a multinomial logit model (MNL) with background variables (sociodemographics, variables describing forest visitation patterns and variables showing the respondents’ NEP profile). The sample is reduced from 1000 observations to 741 because some of respondents chose the option “I do not have an opinion” answering the NEP questions. Statistics of the analysed sample and the description of used variables in the MNL models are shown in Table X. Table X. Statistics of the analysed sample and the description of used variables in MNL models. Variable in Mean Description Share group 48% women age_30 24% age_50 29% edu_p 10% Dummy: 1=women, 0=men Dummy: 1=being younger than 30 years , 0=being 30 or older Dummy: 1=being 50 years or older, 0=being younger than 50 Dummy: 1=having a primary education, 0=having higher education than a primary one Dummy: 1=having a Bachelor’s degree or higher, 0=having a lower education than a Bachelor’s degree Dummy: 1=net personal income per month lower or equal to 500 zł, 0= net personal income per month higher than 500 zł, Dummy: 1=net personal income per month higher than 3500 zł, 0= net personal income per month lower or equal to 3500 zł, Dummy:1=having a children younger than 18, 0=not having children younger than 18. Dummy:1=living in villages, 0=living in towns or cities Dummy:1=the frequency of forest visit was once a month or more often during the last year: 0=the frequency of forest visit was lower than once per month during the last year Dummy: 1=the observation of nature as a purpose of forest visit during the last year, 0=other purposes of forest visits Dummy: 1=doing sport activities as a purpose of forest visit during the last year, 0=other purposes of forest visits Dummy: 1=picking mushrooms as a purpose of forest visit during the last year, 0=other purposes of forest visits edu_h 48% ind_inc_l 17% ind_inc_h 10% child 56% village 36% vis_h 58% vis_nat 53% vis_sport vis_mush July 2-3, 2013 Cambridge, UK 22% 62% 6 2013 Cambridge Business & Economics Conference ISBN : 9780974211428 Continuous: a Likert scale for believes in severity of an co-crisis based on the NEP scale* Continuous: a Likert scale for believes in antianthropocentrism based on the NEP scale* Continuous: a Likert scale believes in the fragility of nature’s balance based on the NEP scale* NEP_ecocr 6.79 NEP_antro 7.83 NEP_freg 6.43 * A Likert scale is the sum of the Liker items. The Likert items used in the NEP scale are statements concerning environment. They are given to respondents to evaluate them according to the level of agreement: “strongly agree”=4, “somewhat agree”=3, “somewhat disagree”=2, “strongly disagree”=1, “I do not have on opinion”=excluded observations. Used items: The severity of an eco-crisis 3. Humans are severely abusing the environment. 6. The so–called ‘‘ecological crisis’’ facing humankind has been greatly exaggerated. 9. If things continue on their present course, we will soon experience a major ecological Anti-anthropocentrism 1. Humans have the right to modify the natural environment to suit their needs. 4. Plants and animals have as much right as humans to exist. 7. Humans were meant to rule over the rest of nature. Fragility of nature’s balance 2. When humans interfere with nature it often produces disastrous consequences. 5. The balance of nature is strong enough to cope with the impacts of modern industrial nations. 8. The balance of nature is very delicate and easily upset. Agreement with items: 6,1,7,5 indicate anti-NEP responses. In those cases we used an inverse scale. July 2-3, 2013 Cambridge, UK 7 2013 Cambridge Business & Economics Conference ISBN : 9780974211428 4. Results According to 40% of the respondents the central government should pay for the biodiversity enhancement programme and 23% considered that private owners should pay for it. Only about 8% of respondents agree that forest users should pay for it. Figure 1. General public opinion on who should pay for improving the biodiversity and recreation conditions in private forests in Poland. A slightly different pattern is revealed when respondents were asked who should finance the recreation infrastructure improvement in privately owned forests. In this case most respondents state that local governments should pay for it (34%), 30% agree that private owners should pay for it. In the case of recreation infrastructure improvement only 15% agree that forest users should finance it. Table XX shows the estimation results for two models: the upper one explains the choice “users should pay for the biodiversity enhancement in private forests”, the lower one – forest owners should pay for those changes. For both models local governments or the national government is the reference, so the interpretation of the estimated coefficients should be done in relation to this group. Table XX. MNL results for the biodiversity enhancement in private forests (the reference category is local governments or the national government pay). USERS July 2-3, 2013 Cambridge, UK parameter intercept women age_30 Coef. -3.580442 .6331462 1.119948 -.3985563 .3023942 .3712549 Std. Err. 1.119948 .3023942 .3712549 Z -3.20 2.09 -1.07 P>z 0.001 0.036 0.283 8 2013 Cambridge Business & Economics Conference age_50 edu_p edu_h ind_inc_l ind_inc_h child village vis_h vis_nat vis_sport vis_mush NEP_ecocr NEP_antro NEP_freg intercept women age_30 age_50 edu_p edu_h ind_inc_l ind_inc_h child village vis_h vis_nat vis_sport vis_mush NEP_ecocr NEP_antro NEP_freg -1.127348 .429441 .2846837 .4357286 .429441 -.7396916 .3208052 .4357286 -.1596937 .3959111 .3208052 .4288966 .4569182 .3959111 .0640083 .3142015 .4569182 -.0004047 .2993429 .3142015 .057034 .3220343 .2993429 .1998804 .3057265 .3220343 -.1026588 .3597285 .3057265 -.1354458 .3043582 .3597285 .0233907 .1053114 .3043582 .073001 .131089 .1053114 .1323185 .1137015 .131089 OWNERS -1.399034 .7382793 .1137015 .0148802 .1923954 .7382793 -.3013011 .2559199 .1923954 .0770647 .2207478 .2559199 .0001796 .3148894 .2207478 -.1332244 .2000538 .3148894 .1530739 .2499177 .2000538 .0433565 .3210063 .2499177 -.249284 .1950926 .3210063 -.1485977 .1990356 .1950926 .0101889 .2029404 .1990356 .2325032 .1970676 .2029404 -.291292 .2361129 .1970676 .0485084 .1963202 .2361129 .1198244 .0636037 .1963202 -.0041524 .0878665 .0636037 -.0568845 .0722553 .0878665 N 741 .0722553 LR p-value 0.1777 Note: Bolded variables are significant at the 10% level. ISBN : 9780974211428 -2.63 0.65 -2.31 -0.40 0.94 0.20 -0.00 0.18 0.65 -0.29 -0.45 0.22 0.56 1.16 -1.89 0.08 -1.18 0.35 0.00 -0.67 0.61 0.14 -1.28 -0.75 0.05 1.18 -1.23 0.25 1.88 -0.05 -0.79 0.009 0.514 0.021 0.687 0.348 0.839 0.999 0.859 0.513 0.775 0.656 0.824 0.578 0.245 0.058 0.938 0.239 0.727 1.000 0.505 0.540 0.893 0.201 0.455 0.960 0.238 0.217 0.805 0.060 0.962 0.431 Intercepts in both models suggest that the respondents prefer that in private forests changes in a biodiversity level should be financed from local budgets or the central budget. Women are likely to be in favour of the “users should pay” option instead of the national government or local governments expenditures for the biodiversity enhancement, whereas people who are older than 50 or with a higher education reveal the opposite preferences. The respondents who tend to believe more in eco crisis are more likely to choose owners should pay for proposed changes than a local or the national government. July 2-3, 2013 Cambridge, UK 9 2013 Cambridge Business & Economics Conference ISBN : 9780974211428 Table XXX. MNL results for the tourist infrastructure enhancement in private forests (the reference category is local governments or the national government pay). Coef. Std. Err. -.3378637 .877827 -.374783 .2336728 .877827 -.2930038 .2963498 .2336728 -.2811724 .274116 .2963498 -.0495867 .3755907 .274116 -.4115037 .2417685 .3755907 .1866745 .3081594 .2417685 .3600159 .3667497 .3081594 .1072275 .2375829 .3667497 -.3868087 .2389267 .2375829 .0057745 .2473512 .2389267 .2755044 .2384721 .2473512 .2300476 .2583738 .2384721 -.3840391 .2321983 .2583738 .0408833 .077671 .2321983 .022263 .1053489 .077671 -.1405818 .0877849 .1053489 OWNERS -.2813065 .6972585 .0877849 .1387812 .1819028 .6972585 -.4026092 .236323 .1819028 -.1416291 .2142736 .236323 -.0019635 .3001755 .2142736 -.0901056 .1902366 .3001755 .3981957 .2344573 .1902366 .4688234 .294629 .2344573 -.2435961 .1853934 .294629 -.3716013 .1892987 .1853934 -.1245368 .1914682 .1892987 -.1508902 .1852645 .1914682 -.0963525 .2231662 .1852645 -.0774931 .1855764 .2231662 .0937752 .0612585 .1855764 -.0026809 .0827249 .0612585 -.0842452 .0690631 .0827249 N 741 .0690631 LR p-value 0.2563 Note: Bolded variables are significant at the 10% level. USERS parameter intercept women age_30 age_50 edu_p edu_h ind_inc_l ind_inc_h child village vis_h vis_nat vis_sport vis_mush NEP_ecocr NEP_antro NEP_freg intercept women age_30 age_50 edu_p edu_h ind_inc_l ind_inc_h child village vis_h vis_nat vis_sport vis_mush NEP_ecocr NEP_antro NEP_freg Z -0.38 -1.60 -0.99 -1.03 -0.13 -1.70 0.61 0.98 0.45 -1.62 0.02 1.16 0.89 -1.65 0.53 0.21 -1.60 -0.40 0.76 -1.70 -0.66 -0.01 -0.47 1.70 1.59 -1.31 -1.96 -0.65 -0.81 -0.43 -0.42 1.53 -0.03 -1.22 P>z 0.700 0.109 0.323 0.305 0.895 0.089 0.545 0.326 0.652 0.105 0.981 0.248 0.373 0.098 0.599 0.833 0.109 0.687 0.445 0.088 0.509 0.995 0.636 0.089 0.112 0.189 0.050 0.515 0.415 0.666 0.676 0.126 0.974 0.223 In the case of the tourist infrastructure enhancement the intercept parameters are insignificant reviling no statistical difference overall between preferences for users should pay and owners should pay relative to local governments or the national government should pay. However, heterogeneity of preferences towards who should pay are captured by the chosen parameters. July 2-3, 2013 Cambridge, UK 10 2013 Cambridge Business & Economics Conference ISBN : 9780974211428 The results suggest that the respondents with a higher education and those who were picking mushrooms in forests during the last year are more likely to be against the option that users should pay for the tourist infrastructure changes. Additionally, the probability of an individual stating that owners should pay rather than local governments or the national government increases with a lower education. Younger people and those living in the countryside are less likely to choose owners should pay for the changes in a tourist infrastructure. 5. Discussion Only around 20% of Polish forests are privately owned. The sites smaller than 5 ha account for 73% of those forests. Even though private forest owners have the right to forbid access to a forest by posting an adequate information table, such situations rarely occur in practice. Taking those factors into account, on average, Poles have a little experience in visiting private forests and even if they recreate in a private forest often they are not aware of that fact. Because of that, payments for ecosystem services in private forest can be an unfamiliar issue for Polish respondents. The MNL models results suggest that in respondents’ opinion a non-use service – the biodiversity enhancement in private forests – should be provided by local governments or by the national government. This can be explained by the fact that biodiversity is considered as a public good type. On the other hand, the tourist infrastructure enhancement in private forest can be seen as a private good. In this case we do not observe overall preferences for having either of the three options pay rather than the other. What is surprising that only in one model an income level affects respondents’ preferences towards PES. Only in the case of the tourist infrastructure enhancement the probability of an individual stating that owners should pay rather than local governments or the national government increases with a lower income. At the same case people living on the countryside are less likely to agree with the statement that for those changes owners should pay. This can be explained by the fact that among rural dwellers there is the highest share of forest owners. The results show a tendency that people with a higher education are more against that users should pay for the biodiversity and the tourist infrastructure enhancement. Intuitively, the first fact can be interpreted as people with a higher education are aware of the non-use value of biodiversity and they are against to shift the financial responsibility of such changes only for July 2-3, 2013 Cambridge, UK 11 2013 Cambridge Business & Economics Conference ISBN : 9780974211428 forest users. Why people with a higher level of education are more in favor of paying for the tourist infrastructure changes in private forest by the government than by users is not so obvious. The interesting finding is that people who believe more in the severity of eco-crisis are more likely to choose that owners should pay than local governments or the national government for changes both: in a biodiversity and tourist infrastructures levels (in the latter case the difference is significant at the 13% level). This can be explained by the fact that respondents could think that a private management and owners’ financing is the best option to enhanced forest services when facing the danger of an eco-crisis. 1 6. Conclusions In this study, a model for measuring impacts of forest services from sustainability perspectives and in a monetary metric was developed. The study demonstrates a possibility to produce an impact analysis in a financial term. We try to estimate socio-economical impact in terms of measures typical for economic perspective. Forest externalities and social responsibility for payments for ecosystem services to private forest owners in Poland depends mostly on public goods consideration types. Tourism infrastructure seems to be crucial for satisfactory level as a conceptualization of “well-being” that incorporates environmental determinants. So social, environmental and economic contributors can be estimated in terms of externalities framework determining maximization of social welfare. However the final impact depends not only on personal preferences but also on institutional framework and participatory attitude of the involved parties. 1 Acknowledgment: This study was carried out as a part of the NEWFOREX project (New Ways to Value and Market Forest Externalities, FP7-KBBE-2009-3, Project no. 243950). Funding support is gratefully acknowledged. July 2-3, 2013 Cambridge, UK 12 2013 Cambridge Business & Economics Conference ISBN : 9780974211428 Bibliography 1. Anderies J. M., M. A. Janssen, and E. Ostrom, 2005. A framework to analyze the robustness of social-ecological systems from an institutional perspective. Ecology and Society, 9. 2. Andersson T., Lunberg E. 2013. Commensurability and sustainability: Triple impact assessment of a tourist event. Tourism Management 37 999-109) 3. Corbera E., C. 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