1. 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

2. 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/eaere2003/session03.htm) 2. Analysis of Property Rights

3. Policy problem Maintenance of biologically diverse ecosystems Land requirements and the opportunity costs of non-conversion  critical trade-off for developing countries

4. 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

5. 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

6. 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

7. 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?

8. 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 => Dynamic Hotelling model Assess long-term viability of an extractive reserve under this scenario

9. 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

10. 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.

11. 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

12. 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 reserve’s welfare position.

13. 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

14. Evidence

15. 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?

16. 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 HOUSEHOLDS Exclusive rights over the exploitation of natural resources in individual land plots Institutional Support Internal Monitoring Legitimate the community

17. 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)

18. 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 R&D activities; Also: Lack of necessary expertise to carry out systematic research and product development. PRs within the reserve– New NWFP

19. 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 PR within the reserve– Genetic resources

20. PRs in the wider economy

21. Discussion E: effective; D: deficient

22. 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?