Joshua Farley
Community Development and Applied Economics
Gund Institute of Ecological Economics
University of Vermont joshua.farley@uvm.edu

 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

 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?

 Raw materials = ecosystem structure

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

 Structure generates function= ecosystem services

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

 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

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

 Rival resources

My use leaves less for you to use

All ecosystem goods are rival
 Non-rival

My use does not leave less for you to use

Inefficient to ration through prices

Most ecosystem services are non-rival

Information is perfectly non-rival
 Non-rival but congestible
 Physical attribute (not a policy variable)

Rival
Competition
Allocation Matrix
Excludable
Markets possible
Market Good :
Ecosystem structure,
Fossil fuels, Waste absorption capacity
(e.g. SO
2
)
Non-Excludable
Markets not possible
Open Access Regime:
Unowned ecosystem structure, waste absorption capacity (e.g. CO
2
)
Non-rival
Cooperation,
Markets not desirable
Non-rival, congestible
Tragedy of the noncommons : patented information, e.g. Tamiflu, AIDS medicine
Club or Toll Good
Pure Public Good:
Street lights, national defense, most ecosystem services, non-patented information

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/year
•World’s highest biodiversity humid forest converted to pasture yielding $20/ha/year
•Causes droughts, floods, erosion, biodiversity loss, microclimate change, etc.
•System likely to undergo radical transformation
•Greedy self interest creates invisible foot

 Convention on Biodiversity establishes property rights to genetic information
 Impact on research in tropics
 Impact on human welfare: Avian flu
 Creates another invisible foot

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

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
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

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

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

 Social provision and ownership of nonrival benefits

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
 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
 In-kind compensation, e.g. information

Countries sized in proportion to Forest Loss

Countries sized in proportion to royalty payments made to them

 Public financing of research on technologies that preserve or provide public goods

What percent of inventors are independent?

Might be supplemented by prizes
 No patents on publicly financed research, or future research that uses it
 Eminent domain applied when necessary

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

 We cannot decide how to allocate until we understand nature of scarce resources
 Rivalness is critical to allocation

Private ownership appropriate for 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