Transcript Lecture 4 - University of California, Berkeley

Property Rights and Collective Action in
Natural Resources with Application to Mexico
Lecture 1: Introduction to the political economy of natural resources
Lecture 2: Theories of collective action, cooperation, and common property
Lecture 3: Principal-agent analysis and institutional organization
Lecture 4: Incomplete contracts with application to Mexico
Lecture 5: A political economy model
Lecture 6: Power and the distribution of benefits with application to Mexico
Lecture 7: Problems with empirical measurement with application to Mexico
Lecture 8: Beyond economics: An interdisciplinary perspective
Measuring governance
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What is governance?
What is “good” governance?
“It’s the economy, stupid” (Carville to Clinton)
Economic development
Poverty alleviation
Quality of life
Measuring governance
• Hernando de Soto
– The informal economy
– E.g. 500 days in Bombay for a bakery to legalize it.
– $9.3 trillion in real estate held but not legally owned
by poor
– Recommendation: strengthen property rights and
lower transaction costs of business
• Rodrik
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“Getting institutions right” – laws, policies, freedoms
Beyond property rights
Ex. China v. Russia
Which rules and institutions are working?
2005 World Bank governance
indicators
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213 countries
1996-2005
28 organizational sources
Citizen, firm and expert surveys
2005 World Bank governance
indicators: Sources
African Dev. Bank, Afro-barometer, Asian Dev.
Bank, BTI, BEEPS, QLM, CUD, Country Policy
and Institutional Analysis, EIU, EBR, Freedom
House, Gallup International, EGV, DRI, WMO,
Heritage Foundation, IJT, WCY, Media
Sustainability Index, Latino Barometer, Merchant
International group, PRC, Political Risk Services,
Reporters without Borders, State’s Trafficking in
People Report, Amnesty International, WBS,
World Economic Forum
Rationale
• Governance matters:
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development,
income per capital,
economic growth,
infant mortality
“If cannot measure it, cannot improve it.”
Yes, can measure
Developed AND developing countries need it
Significant progress can occur in relatively short
time
2005 World Bank governance
indicators
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Many individuals measures as imperfect
signals
Unobserved components model to aggregate
6 aggregate indicators:
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Voice and accountability
Political instability
Government effectiveness
Regulatory quality
Rule of law
Control of corruption
1. Voice and Accountability
Extent to which a country’s citizens are
able to participate in selecting their
government as well as freedom of
expression, association, and media.
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Accountability of public officials
Civil liberties
Freedom of press
Military in politics
Democratic accountability
Representativeness: how well population can make voices heard
in political system
2. Political instability and absence
of violence
Perceptions of likelihood of government
destabilized or overthrown by
unconstitutional or violent means
including political violence or terror.
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Military coup that reduces GDP growth rate
Political terrorism, assassination that reduces GDP growth rate
Ethnic tension
Internal conflict – political violence and impact
External conflict – risk to government and investment
Civil unrest
Extremism – threat by groups with narrow, fanatical beliefs
3. Government effectiveness
Quality of public services, civil services and degree of
independence from political pressures, quality of policy
formulation and implementation, and credibility of
government to commitments to such policies.
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Government personnel turnover rate that reduces GDP growth
rate
Institutional rigidity that reduces GDP growth rate
Quality of bureaucracy
Public spending composition
Quality of public infrastructure
Quality of schools
Policy consistency and forward planning
Time spent by management dealing with govt officials
4. Regulatory quality
Ability of government to formulate and
implement sound policies and
regulations that permit and promote
private sector development
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Export reduction due to worse regulations (limits)
Import reductions due to worse regulations (quotas)
Increase in regulatory burdens
Legal restrictions on non-resident ownership of equity
Tax effectiveness
Tax system distortionary
5. Rule of law
Extent to which agents have confidence in
and abide by rules of society and in
particular the quality of the contract
enforcement the police and courts of law
as well as likelihood of crime and
violence.
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Increase in crime, kidnapping foreigners
Enforceability of contracts (govt and private)
Popular observance of law
Impartiality of legal system, judicial independence
Property rights, Intellectual property rights
Legal framework to challenge govt actions
6. Control of corruption
Extent to which public power is exercised for
private gain including petty and grand forms of
corruption as well as capture of the state by
elites and private interests.
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Increase in assessment of corruption
Public trust in financial honesty of politicians
Frequency of extra payments, bribery
Red tape to be encountered
Likelihood of encountering corrupt officials
Power through patronage rather than ability
Accounting standards
Transparency of decision making
Survey work in Mexico
• Applications to Mexican forestry
– Perez and Lovett (2005)
• 38 communities in La Sierra Tarahumara, Chihua.
• April-September 2002
– Phase 2 of Mexican national survey project
• 41 communities in Michoacan and Durango
• October 2005 – April 2007
Chihuahua study (Perez and
Lovett)
Central hypothesis:
With greater inequality in distribution of
power within group, those with more
power impose externalities on those with
less power.
Impacts of power inequality
• Existence/enforcement informal rules: survey questions
• Existence/enforcement formal rules: survey questions
• Income: wages to members from timber extraction+ repartos +
investments in collective assets per year; survey questions
• Income inequality: Gini coefficient related to forestry income
• Annual illegal logging during CBC period: m3 rta/year; Profepa
• Forest degradation: scale = (1,5); perceptions from questionnaire
to experts
Measures of power inequality
• Power heterogeneity = .33(a+b+c) where:
 a = illiteracy rate (%)
 b = Gini index of timber assets (%)
 c = not Spanish speaking (%)
• Internal power disparity = CBC v. member
assets (pesos)
• External power disparity = CBC external
connections (1-5)
Results
Power heterogeneity
Informal rules (--)
Formal Rules (--)
Income (--)
Forest degradation (--)
Internal Power
Formal Rules (-)
Income inequality (+)
Illegal logging (+)
Forest degradation (+)
External power
Informal rules (+)
Illegal logging (-)
Forest degradation (-)
Collective assets
Informal rules (+)
Income (+)
Lecture Conclusions
• What are we looking for when we measure
governance?
• No unique mapping from institutional
function to institutional form
• Idiosyncrasies, context specific
• Have to identify what is important in each
case
Phase 2 of National Survey of
Mexican Community Forests
• Surveyed 41 communities in Michoacan and Durango
• Random sample stratified on forest size and “tipo”
“Type”
Michoacan
Durango
Avg. pop.
(yr=2000)
Avg. forest
(ha)
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4
4
990
6632
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6
10
943
5279
3
2
9
197
6178
4
0
5
798
8004
Total
13
28
726
6097