Property Rights and Collective Action in Natural Resources with Application to Mexico

1. 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

2. Measuring governance • What is governance? • What is “good” governance? • “It’s the economy, stupid” (Carville to Clinton) • Economic development • Poverty alleviation • Quality of life

3. 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 • “Getting institutions right” – laws, policies, freedoms • Beyond property rights • Ex. China v. Russia • Which rules and institutions are working?

4. 2005 World Bank governance indicators • 213 countries • 1996-2005 • 28 organizational sources • Citizen, firm and expert surveys

5. 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

6. Rationale • Governance matters: • 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

7. 2005 World Bank governance indicators • Many individuals measures as imperfect signals • Unobserved components model to aggregate • 6 aggregate indicators: • Voice and accountability • Political instability • Government effectiveness • Regulatory quality • Rule of law • Control of corruption

8. 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. • 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

9. 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. • 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

10. 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. • 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

11. 4. Regulatory quality Ability of government to formulate and implement sound policies and regulations that permit and promote private sector development • 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

12. 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. • 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

13. 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. • 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

14. 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

15. 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.

16. 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

17. 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)

18. Results

19. 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

20. Phase 2 of National Survey of Mexican Community Forests • Surveyed 41 communities in Michoacan and Durango • Random sample stratified on forest size and “tipo”