Economics of Cooperation (Subject) / Collective Action and Economic Cooperation (Lesson)

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• Governing the Commons: Criteria for successful cooperation Similarities among sustainable and robust CPR settings Uncertain, complex, and interdependent environments location and time of rainfall construction of physical works reduces level of uncertainty but tends to increase complexity (management skills, maintenance) Stable Populations over long periods of time Important to generate reputation (social capital) low discount rates --> benefits of costly investments in provision are likely to be reaped by proprietors
• Governing the Commons: Criteria for successfull cooperation Design principles illustrated by long-enduring CPR institutions Clearly defined boundaries congruence between appropriation and provision rules and local conditions Collective choice arrangements Monitoring Graduated sanction Conflict-resolution mechanisms Minimal recognition of rights to organize Nested enterprises Essential for success of institutions in sustaining CPRs and gaining compliance of generation after generation of appropriators to the rules in use, but: not necessary condition for achieving institutional robustness in CPR settings For design principles to constitute explanation for sustainability of CPRs, it has to be shown how they can affect incentives for conforming to operational rules, monitoring each others conformance, and replicating the CPR institutions across generational boundaries
• Governin the Commons: criteria for successfull cooperation 1. Design Principle: Clear Cut boundaries Individuals/households who are apropriating resource unit from CPR must be well defined the boundaries of a CPR must be well defined Without defining boundaries of CPR and closing it to outsiders, local appropriators face risks of loosing self-produced benefits (action of others could destroy the resource itself) For any appropriator to have miminal interest in coordination patterns of appropriation and provision, some set of appropriators must be able to exclude others from access and appropriation right -->enforcement of oproperty rights! presence of boundaries, however, is not sufficient to achieve successful regulation: even a situation with limited number of appropriators can lead to overuse --> additional rules limiting appropriation and/or mandating provision are needed
• Governin the Commons: criteria for successfull cooperation 2. Design Principle: Congruence between appropriation/delivery rules and local conditions appropriation which are limiting time, location, technique and quantity of resource unit of appropriation, are adjusted to local conditions and delivery rules, with regard to labor input, material inputs, money Additional criteria: Extensive norms that narrowly define "proper" behaviour (enabling individuals to live in close interdependence without excessive conflicts) Homogenous groups (None of these situations involves participants who vary greatly in regard to ownership of assets, skills, knowledge) Reasons for sustainability and robustness of a particular resource systems and institutions despite challenges caused by complex, uncertain, adn interdependent environments in which individuals have continuously faced substantial incentives to behave opportunistically The specific operational rules differ markedly among the CPR settings Variations in particular rules take into account specific attributes, cultural views, economic and political relationships of different CPRs and is hence part of the explanation Example: Irrigation example
• Governin the Commons: criteria for successfull cooperation 3. Design Principle: Arrangements for collective decision making those persons who are affected by operational rules can participate in decisions which are changing these rules enables to tailor rules of CPR institutioins better to local circumstances --> interacting individuals can modify rules over time to adjust them to specific characteristics of their setting But: presence of good rules does not ensure that appropriators will follow them, Initial design and agreement on operational rules does not explain continuous compliance External enforcement cannot be used to explain high levels of comopliance models of repeated situations, assuming information about everyones strategies in previous rounds is freely available --> generate optimal equilibria without external enforcement with intervention: Samaritarian Dilemma reputation and shared norms can be insufficient to produce stable cooperative behavior over the long run --> active investments in monitoring/sanction activities is necessary
• Governin the Commons: criteria for successfull cooperation 4. Design Principle: Monitoring and Enforcement Those who are actively controlling the state of a CPR and the behavior of appropriators, are accountable to the appropiators or are part of the appropriator's group
• Governin the Commons: criteria for successfull cooperation 5. Design Principle: Graduated Sanctions appropriators who are violating operational rules are punished with credible and stepwise sanctions by other appropriators or their appointed agents, depending on severity and context of violation Prevalent presumption: Participants themselves will not undertake mutual monitoring and enforcement because of associated high personal costs and public good characteristics of actions Explanation for costly investments in monitoring and sanctioning in self-governing CPR institutions voluntary in a sense that individuals choose to comply in many situations in which they are not directly coerced quasi-voluntary because non-compliance are subject to coercion (peer pressure, social sanction) Strategic actors are willing to comply with a est of rules when: they perceive that the collective objective is achieved they perceive that others also comply --> Contingent nature of commitment to comply with rules: coercion as essential condition to achieve quasi-voluntary compliance as contingent behaviour because it increases probability for other participants compliance Internal enforcement: deter those who are tempted to break rules assure quasi-voluntary compliers that others also comply Given evidence that individuals do monitor, relative benefits must exceed costs of monitoring --> monitoring as natural by.product of using commons Cheaters observed at lwo cost by those who most want to deter cheaters at that particular time and location (ex. Irrigation rotation system) Benefits from successful monitoring are allocated to appropriators who monitor (status and prestige for beeing good protector of the commons, infractors lose status and prestige) In case of internal monitoring by guards accountable to other appropriators, latter continue monitoring guards as well as each other  
• Governin the Commons: criteria for successfull cooperation 6. Design Principle: Conflict resolution mechanism Appropriators and their appointed agents have easy access to cost-effective arenas of conflict resolution there are always various ways of interpreting a rule in a way that it seems like complying, but in effect is undermining original intent If individuals are going to follow rules over a long period of time, there must be a mechanism for discussing and resolving what constitutes an infraction --> otherwise rules could be seen as unfair and conformance rates may decline --> Danger of system breakdown
• Governin the Commons: criteria for successfull cooperation 7. Design Principle: Minimum respect of organizational rights of a user group the right of appropriators to develop their own institutions is not questioned by any external governmental administration Appropriators frequently devise their own rules without creating fromal governmental jurisdictions for this purpose If external governmental officials give at least a minimal recognition to the legitimacy of such rules, the CPR members may be able to enforce the rules themselves If officials presume that only they have authority to set rules, then it will be very difficult for locals to sustain a rule-governed CPR in the long run --> Key challgne in DCs
• Governin the Commons: criteria for successfull cooperation 8. Design Principle: Embedded enterprises in case of CPRs which are part of a larger system applies to compley, enduring CPR systems Appropriation, delivery, conflict resolution and management activities are organized within enterprises which are themselves embedded in multiple level structures --> Multi level, plycentric governance (eg. Spanish irrigation system huertas)
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• Cooperation in Socio-Ecological Systems (SES) How to analyze complex socio/social-ecological systems general framework to identify 10 subsystem variables affecting the likelihood of self-organization All humanly used resources are embedded in complex, SES, which are composed of multiple subsystems internal variables multiple levels --> common, classificatory framework needed to organize findings from natural and social sciences --> cumulated isolated knowledge to enhance efforts to sustain SESs Subsystems are: Resource Systesms (RS): coastal fishery, biosphere reserve, electric power system Resource Units (RU): lobsters, plant and animal species, electricity, water units) Users (U): fishers, traditional healers, pharmaceutical industry, government Governance Systems (GS): organizations cum rules (=institutions) Interaction (I): users extract resource unit from the RS and transform them Outcomes (O): transform in order to produce outcomes: goods, services at SES level Feedback to affect these subsystems: overuse, creating new systems=intensive agriculture; other larger or smaller SES (rainforest, world climate)
• Cooperation in Social-Ecological Systems Purpose of SES framework bring together ecological and social sciences bring together scientific and non-scientific knowledge Understanding extremely complex systems Trying to dissect and harness complexity rather than eliminating it Establish a common, classificatory framework to facilitate multidisciplinary efforts Organizing relevant variables identified in theories and empirical research, through isolated knowledge --> Framework provides a common set of potentially relevant variables identified in many empirical studies as affecting interactions and outcomes
• Cooperation in Social-Ecological Systems SES: prediction of resource collapse How to avoid a Tradegy of the Commons is supported in very large, highly valuable, open-access systems when resource harvesters are diverse, do not communicate and fail to develop managing rules and norms is not supported under conditions that a)enable harvesters and local leaders to self-organize effective rules to manage a resource or b) when subjects can discuss options to avoid over-harvesting --> understanding of reasons for sustainability of particular SESs requries identifiaction and analysis of interdependencies between subsystems as well as linked social, economic, and political settings and related ecosystems --> Necessary condition for self-organizing: expected benefits of managing a resource must exceed perceived costs of investing in better rules and norms for most users and their leaders Even though joint benefits may be created --> costs of self-organizing to sustain a resource can result in loss of short term economic gains --> might be reason for continue to overharvest instead of initiating costly changes Second level variables are frequently identified as positively or negatively affecting the likelihood of users self-organizing to manage a resource
• Cooperation in Social-Ecological Systems Variables affecting sustainability and cooperation Size of resource system Productivity of system Predictability of system dynamics Resource unit mobility Number of users Leadership Norms/social capital Knowledge of the SES Importance of resource to users Collective Choice rules --> Although long-term sustainability of SESs is initially dependent on users or governmental to establish rules, these rules may not be sufficient in the long run --> If the initial set of rules established are not congruent with local conditions, long-term sustainability may not be achieved --> Furthermore, long-term sustainability of rules devised at a focal SES level depends on monitoring adn enforcement as well as not being overruled by larger government policies (selling fish quotas to other nations)
• Cooperation in Social-Ecological Systems Variables affecting sustainability and cooperation 1. Size of resource system Very large territories are unlikely to be self-organized due to high costs of defining boundaries, monitoring and fining use patterns, gaining ecological knowledge (forest) Very small territories do not generate substantial flow of valuable products for users --> Moderate territorial size is most conducive to self- organize
• Cooperation in Social-Ecological Systems Variables affecting sustainability and cooperation 2. Productivity of system resource systems current productivity has a curvilinear effect on self-organization across all sectors If a fishery is already very exhausted or apperently very abundant, users will noct see a need to manage for the future -->Users need to observe some scarcity before they invest in self-organization
• Cooperation in Social-Ecological Systems Variables affecting sustainability and cooperation 3. Predictability of system dynamics System dynamics need to be sufficiently predictable that users can estimate the effect of cooperation Forests tend to be more predictable than water systems Unpredictability at small scale may lead users of pastoral systems to organize at larger scale to increase overall predictability
• Cooperation in Social-Ecological Systems Variables affecting sustainability and cooperation 4. Resource unit mobility Due to costs of observing and managing a system, self-organization is less likely with mobile resource units (wildlife, offshore fish) than with stationary units (trees, pond fishery)
• Cooperation in Social-Ecological Systems Variables affecting sustainability and cooperation 5. Number of users Impact of group size on transaction costs of self-organizing tends to be negative (given higher costs of getting users together and agreeing on changes) However, if tasks of managing a resource are very costly (eg managing extensive community forests in India) larger groups are more able to mobilize necessary labor and other resources --> Group size is always relevant, but its effect on self-organization depends on other SES variables and the management tasks envisioned
• Cooperation in Social-Ecological Systems Variables affecting sustainability and cooperation 6. Leadership Self-organization is more likely when some users have entrepreneurial skills and are respected as local leaders
• Cooperation in Social-Ecological Systems Variables affecting sustainability and cooperation 7. Norms/social capital Users who share moral and ethnical standards regarding how to behave in groups, and thus the norms of reciprocity, and have sufficient trust in another to keep agreements will face lower transaction costs in reaching agreements and lower costs of monitoring (economic experience)
• Cooperation in Social-Ecological Systems Variables affecting sustainability and cooperation 8. Knowledge of the SES Share of common knowledge of relevant SES attributes, how users actions affect each other, and rules used in other SESs results in lower costs of organizing If a resource system regenerates slowly while population grows rapidly (Eastern Island), users may not understand carrying capacity of resource, fal to organize and destroy resource
• Cooperation in Social-Ecological Systems Variables affecting sustainability and cooperation 9. Importance of resource to users In case of successful self-organization, users are either dependent on the RS for a substantial portion of their livelihoods or attach high value to the sustainability of the resource Otherwise, the costs of organizing and maintaining the resource may not be worth the effort
• Cooperation in Social-Ecological Systems Variables affecting sustainability and cooperation 10. Collective Choice rules If users have full autonomy at collective choice level to craft and enforce some of their own rules, they face lower transaction costs as well as lower costs in defending a resource against invasion by others
• Collective Action, Property Rights, and Poverty Reduction Framework for analysis: How can collective action (and property rights) contribute to poverty reduction? Institutional Analysis and Development (IAD) framework Context and action arena section Context: Initial socio-economic and political conditions shaping the opportunity set of people for possible action (individual, collective) Relevant conditions for the poor: Asset base, shocks and risks, political strucutre (legal strucutre and power, governance)
• Collective Action, Property Rights, and Poverty Reduction IAD (Institutional Analysis and Development: context Assets: Different forms of capital physical - neoclassical production theory, investment theories, neoclassical growth theory financial - NIE capital / credit markets with imperfections social - trust, reciprocity => experimental economics natural - eg whokle NIE theory on property rights in land and related resources, environmental economics, ecological economics human - endogenous growth theory, theories on assets, education and growth --> Assets => freedom of choice (Amartya Sen's capability approach) Assets and the poor: Individually or household-held asset endowments. The poor only have work force, some skills, some access to natural resources (CPR) Communal and public assets. Access to assets held by group, community, state (Village pastures, public health care, safety net provision) Accessibility? Complementary and substitute assets: Comp: Agricultural knowledge => improves returns to land; Subst: wild forest products <--> crops (in case of crop failure Assets thresholds and poverty traps. Limlited access to financial markets, too expensive high yielding varieties Risk and Uncertaintiy: Options to address risks: Mitigate exposure to risk (ex ante risk management) Act after a negative shock has accurred (risk-coping) Risk and Uncertainty: Household vulnerability consists of three components: Exogenous characteristics of risks (rainfall distribution) Engagement in ex ante risk management Engagement in coping strategies Risk imiplications on poverty and vulnerability: Well defined risk with high requency: self-insurance (wealthier people) or market based formal insurance Rare events: few options for the poor to take care of (no savings) --> subsidiary function of the government to step in: in DCs less probable in cases of crisis Economic shocks: market crash --> subsistence production as an option for the poor? Socio-political risks: insecurity on peroperty and property rights even for the poor Norms, legal strucutres, and power relations (governance structures) Control and command economies dominant public sectors Differing speed of reform processes Post war traps (Cambodia, El Salvador) --> Driving forces: Integration into world markets Privatization, price mechanism, enabling private contracts Decentralization and inclusion information technology Assets, risk and governance influence institutions of property rights (PR) collective action (CA) PR (f) legal and political structure of society, assets people control, ability to mitigate and cope with shocks PR --> future accumulation of assets, vulnerability to future shocks, possible loss of assets PR --> health, status --> power in society CA= rules affecting cooperative behavior including social norms, sanctions for non compliance, enforcement CA (f) legal and political structure (freedom of association, social norms (reciprocity rules, (dis-)trust)) Exposure to risk --> capacity to cooperate PR--> means to invest in CA
• Collective Action, Property Rights, and Poverty Reduction Institutional Analysis and Development (IAD): action arena How do users, state, civil society make use of CA and can change institutions to reduce poverty Context = initial conditions are displayed Action Arena = people's agency (the actions themselves) and interactions with other people or actor shape future conditions Actors interact within an action situation: affected by exogenous variables and produce outcomes that affect them at the same time Action situation emerge when two or more individuals are faced with a set of potential actions (here: actions = transactions) that jointly produce outcomes Transactions are economically relevant processes by which goods and services, resources and amenities and damages and nuisances are allocated Transactions caues interdependence between actors because they affect their opportunities to access goods and services (PR), enhance CA, use resources or amenities and be protected against damages and nuisances --> links to neoclassical externality concept Actors (humans who are able to consciously select their actions) will usually respond to a transaction --> interaction between actors Possible action situations, eg: Decision about investing resources in CA Negotiations between different interest/lobby groups Efforts to maintain a resource system (irrigation) Interaction is central: Many outcomes cannot be achieved individually, cooperation is necessary Different action situations: Different actors have different preferences Information-processing capacities Mental maps Assets Power resources All are part of their action resources Each action situation is shpaed by social rules about behavioral use of resources, decision-making mechanisms Which in turn are partly determined by context --> actors, action resources and rules: delimit space in which actors make choices and take action in a specific action situation    
• Collective Action, Property Rights, and Poverty Reduction Dealing with "interaction" in SES and IAD context in IAD: social interaction between people at the centre in SES also: Interaction between nature-related sectors (like agriculture, fishery or forestry) and actors --> enforcement problems and transaction costs Transaction costs economics regards transactions, including their relevant physical dimension, as the basic unit of analysis --> The impact of rules on actors behaviour is also affected by attributes of biophysical and material world acted upon or transformed Hence, physical (and related physical properties of a transaction) and social world (and related physical characteristics of actors) are equally important for institutional analysis Ex.: beauty and quietness of landscape and tourism both physical and social attributes could substantially affect institutional change and institutional performance A particular analytical framework for institutional analysis is needed!  
• Collective Action, Property Rights, and Poverty Reduction Analytical Framework for Investigating Nature-Related Transactions The Institutions of Sustainability (IOS) Framework Regularisation (governance) of human action that leads to transactions affecting relationship between natural and social systems (applying GMO, gene-maize, bt-cotton) Assumption: Institutions (set of rules) and corresponding governance strucutres emerge either a) spontaneously through self-organisation b) intentionally through human design Social construction of institutions and governance structures depends on a) properties of transactions (physical world) and b) characteristics of involved actors (social world) --> Such processes take place in actin arenas where actors are confronted in an action situation
• Collective Action, Property Rights, and Poverty Reduction Institutional Analysis and Development (IAD): interaction and outcomes Specific actions create patterns of interaction= regularized and observable behabioral outcomes--> Reinforcing new institutions or inventing new onesActions and patterns of interaction lead to outcomes--> direct effects: well being--> changes in institutions: stronger CA capacities--> Redesign of PR regimes Outcomes: Structural changes Direct outcomes for the poor: CA for improved irrigation system => enhanced stability of water supply => higher productivity and reduced vulnerability => higher incomes Experiences in CA --> political pressure --> change in institutions affects exisitng contextual factors, such as PR and CA strong feedback loop to context: Evaluative Criteria of outcomes:    * Income    * Basic Needs    * Security (person & property)    * Social and Political inclusion    * sustainability
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• Collective Action, Property Rights, and Poverty reduction Household characteristics influencing Collective Action (CA) Household size duration of living in the village as a household Access to information on village matters --> increase probability of CA Relative wealth is negatively correlated to CA (they buy themselves out of cooperation by hiring poor villagers => applying the market mechanism) Variables with a negative mpact on CA: years of emigration, education, power to influence village decisions Landless and land-poor: less likely  involved in formal institutions for CA Villager characterisitics: Villages with still existing or re-emerging traditional institutions --> higher probability of CA Good market access: low CA (access to NGOs and Government support => crowding-out of endogenous CA)

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