Gifting for ecosystem services: Economic and ecological analysis of soil biodiversity services in agricultural lands Ernst-August Nuppenau T.S Amjath Babu May 2010 Names and Institutional Affiliation of Authors: Ernst-August Nuppenau, Professor (First Author) T. S. Amjath Babu, Postdoctoral fellow (Co author) Institute for Agricultural Policy and Market Research Justus Liebig University Senckenbergstrasse 3 D-35390 Giessen, Germany Email: [email protected] Key words: Gift economy, reciprocity, soil biodiversity, valuation Sunmitted to: 12th Annual BIOECON Conference "From the Wealth of Nations to the Wealth of Nature: Rethinking Economic Growth" Gifting for ecosystem services: Economic and ecological analysis of soil biodiversity services in agricultural lands 1. Introduction Soil organisms are essential service providers for all ecosystems by providing a variety of functions such as recycling of nutrients, controlling physical structure of soil, enhancing nutrient absorption by plants, protecting plants from diseases and augmenting plant health (Altieri, 1999). In ecological terms, soil organisms have value in the sense that they contribute to the condition or to the ‘fitness’ of an ecological system where the ultimate objective is the ‘survival’ (Farber et al., 2002). Nevertheless, ecological services provided by the soil biota have value in an economic sense, only when they are scarce (Underwood, 1998). The value is reflected by the price, which is the willingness to pay for a marginal increase in their scarce services (Heals, 2000). The appreciation of functions soil biota when a price can be attached to their services leads to unappreciation of a major share of their contributions to the ecosystem survival. In this scenario a discussion on alternatives to monistic valuation of ecosystem services based on willingness to pay instrument is essential (Norton and Nooman, 2007). In a capitalistic framework, it is implicitly assumed that goods are having value only when they are exchanged through a market. In this paper, we discuss gifting and reciprocity as an alternate mode of exchange. The motivations of gift exchange are different from market transactions and hence it is an under estimated alternative. But persistence of non-market transactions even in current times is hard evidence that it is a viable alternative (Offer, 1997). The core of market mechanism lies in the assignment of property rights. The fact that one can not attach property rights to nature, in our case, to soil organisms and can not confer the right to demand compensation, makes the alternate exchange mechanisms much more appropriate. It is not possible to abstract the nature and human exchanges to a level of commoditization and service extraction and hence these exchanges do not have the characteristics of market transactions. Considering nature and human interaction in the form of a gift exchange could reflect human behavioral aspects such as recognition of rights, voluntary provision, non-pecuniary evaluation, and relative importance of value in natural and human spheres. This possibility will eventually allow us to gain a different insight into an exchange between humans and nature. In the field of anthropology, gifting as an exchange mechanism is long been recognized. In the case of hunting and gathering economy, gifting acted as an exchange mechanism in the absence of money. The theory of gifting worked out by anthropologists (Sahlin, 2002) documents the role of such exchange mechanisms based on reciprocity. The modern times witnessed ‘great transformation’ from such socially embedded reciprocity to impersonal price mediated market exchange (Offer, 1997). From the latter, a new transformation to environmentally embedded reciprocity is currently required. The aim of this paper is to contribute towards gifting and reciprocity as mechanism to coordinating exchange between humans and nature in general and farmers and soil biota in particular. Reciprocal exchanges preferred when the goods and services are unique, multi dimensional in quality or expensive while market is a better medium when the goods are inexpensive and standardized (Offer, 1997). It can be easily appreciated that the soil biodiversity services fall in the former category. The paper is organized in three sections viz. 1) establishment of the problem statement, 2) introduction into the provision and optimization of farmers and soil biodiversity services, and 3) elucidation of co-ordination mechanisms that lead to mutual resource allocation as well as allows exposition of corresponding values. Formulation of the exchange system is through a mathematical approach that uses linear and non-linear programming as well as a formal approach on expectations in terms of probabilities for reciprocal action. As a systematic result, this modeling on gift exchange can be considered an alternative to market pricing. 2) Problem statement Taking the philosophical debates on human nature relationship for granted, it is argued that there is a need of reciprocity and mutual benefits can be obtained. It is estimated that soil microbes in the topsoil process over 100 tons of organic matter per hectare per year (Chiurazzi, 2008). Indeed, the soil microbes will not think that their services (having costs) are translated to goods and demand labour or goods from humans. Nevertheless, humans can visualize a non-exploitative relationship with nature and healthy soils can provide better services. This is equivalent to a change from slavery to free labour. Delineating the economics of the mutual appreciation (human utility and nature fitness) and deriving the labour and wage exchange rates is daunting task. One way to address this problem is to simulate behaviour of the soil biota as if to achieve an objective function, for instance survival of species (Farber et al., 2002 and Eichner and Pethig, 2006). In this respect, an action (gift) from humans is needed to relax the constraints on soil biota’s objective and to allow a better ‘performance’. Such actions cost humans as they have to sacrifice something of value for nature. However, such a sacrifice may bring them a net-return of greater value, increased eco-system service. To frame such an exchange system, a response function has to embed in soil Biota’s objective function. This response function has to be in the form of an incentive scheme as no humans work with out incentives. It is to be noted that the incentive scheme embedded in the objective function is devoid of money. Let us now discuss on what could replace the role money in the proposed exchange system. To have some idea, we have to go back in time and observe in periods where there were no states, money and contracts. Gifting as an exchange mechanism evolved in such tribal economies which allowed them to profit from tool exchange and material bartering (Sahlin, 1972). The gifting and reciprocity allowed them in mutual valuation of exchanged goods. It is evident, that the tribal exchange was done by independent parties and that it contained a prestation (the obligation to return a gift if one receive a gift). This human to human gifting in tribal economy is extended towards human to nature gifting and the probabilities take the role of money. How the probabilities inform participants in the exchange on expected gifts will be subsequently shown. Gifts are obtainable by the mutually providing gifts (reciprocation). 3) Model outline 3.1 The concept In the case of soil biota, gifting and counter gifting is relative to the state of nature. In natural ecosystems where scarcity might not be the problem, gifting with humans may be irrelevant. But in agro-ecosystems, the exchange with humans can relax the constraints over rendering of microbial services. Again it depends on frameworks what is a gift. For example, in case of a soil microbial biodiversity of agricultural lands, laboring for agricultural practices favouring microbial growth are gifts of humans. The question is what should be the size of labor rendered to nature. In a classical sense the answer would be a nature production function (Wossink et al., 2001). Implicitly, it can be assumed that nature is optimizing its behavior to achieve an objective function, for instance survival of species (Farber et al., 2002) and hence a maximizing mechanism is ‘built’ in nature. A number of studies assume greater efficiency in assimilating energy as objective of species and argue that it is implicit in natural selection (Finnoff and Tschirhart, 2003 quotes studies of Lotka (1925), Herendeen (1991) and various studies of Hannon). This is also in line with species-energy theory (Wright, 1983). In the current study, we postulate that nature (here soil biota) minimizes its energetic losses given organic and in-organic constraints and such a postulation of objective function can be used to receive an optimizing performance (following Eichner and Pethig, 2006). It allows the set-up a behavioral equation that emulates a response function to gifts. The distinctive feature is that the medium of exchange is not money but the probable “willingness” of nature to provide a gift (see later sections for the description). The chosen approach does not say what nature ‘should do’, rather follows an ‘as-ifapproach’ which will allow us to retrieve coefficients of expected gifting. This will fit nature into a ‘gift economy’ with humans. The modeling concept in this respect is those of a food producing farmer who has the choice to rely on soil microbial biodiversity services or buy these services as equivalents. By the term ‘soil microbial biodiversity’, we mean the functional diversity. Services from soil biota that, the farmer seems to receive for free, are of values but are actually calculated at opportunity costs. If he facilitates the proper conditions for the soil micro organisms to develop, the capacity of the soil to deliver services increases. For this increase the farmer devotes labor. His gifting behavior will be retaliated by probable gift receipts as services from nature through a microbial species vector. Assigned probabilities on efforts, in a two directional choice, will direct on how much resources farmers have to devote for nature. Expected services play a major role and expectations become interrelated. 3.2 Role of probabilities Probabilities have a crucial role in modeling interconnectivity, reciprocity, learning and dynamics and hence driving the system to a steady state. Steady states can be interpreted as system equilibriums in which, under certain conditions, optimal gifting evolves. There is no physical balancing foreseen at the moment like in markets. Balancing means that a mismatch between expected and actual exchange will have future impacts through forces rearrangement and adjustment. As it could be foreseen, there may not be any immediate reactions like of the supply and demand concepts which will enforce the gift equilibrium. In this respect probabilities play a different role than price. They are not to be considered the same as prices. For instance, if a mismatch has occurred, the system wealth may decline. From the decline humans learn and nature adapts. Declines can be offset by actions demanding reciprocity with a certain probability. The system can stabilize again. Learning is considered a positive self-enforcing process where match or mismatch of actual and expected gifts leading to learning on probabilities of reciprocity. Since we work with probabilities, a short explanation is needed how probabilities are to be interpreted in our given context of learning on probabilities. Usually, the interpretation is that probabilities are exogenous to the individual. A departure from ordinary statistics in our context is that they shall not be purely driven by chance; rather they are portrayed as been subjective. In a pure stochastic case, the probability depends on the underlying probability density function. We slightly change the meaning and consider probabilities as subjective assessment of chance. The assessment of behavior using probabilities serves to find directions for devoting resources, i.e. which gift to nature offers higher promise (likelihood, confidence or chances) to get eco-system services. The size of probabilities, again has to be seen as subjective assessment of chances and it changes based on the trust in nature’s delivery of service. A gradual process shall underpin the process of trust formation depicted as learning. For our purpose we choose a simple way of adaptive learning in which the previous experiences allow a recalculation of chances to get a gift. Such learning can be even named rational if a trend is, for instance, foreseen (Pashigian, 1970). In order to do so we have to identify expectations, chances and realizations of chances for a mutual gifting or gift-exchange in a sense of a systematic change (tendencies). The match or mismatch of both, expectations and realization, is another core aspect. For this we derive a dependency of the learning functions on matching of expectation and realization. As been necessarily done in dynamic models for the depiction of an adjustment (mismatch between supply and demand as well as incentives to correct), our model contains an explicit dynamic formulation of the adjustment. Furthermore we have to include a residual stochastic element in the exchange. So a mismatch can happen due to a residual stochastic (no-recognition, no-mutual esteem, no gifting, and no co-operation) term. The skill is in finding a ‘willingness’ of nature to reciprocate to the ‘willingness’ of humans to concede exploitation. This aspect matters when it comes to an investigation of empirical cases and practical application. Learning is empirical. For the moment we want to establish the underlying theory of exchange. 3.4 learning of probabilities The consecutive part of this outlay is based on the distinction between expectations and its realization. Gifting is voluntary, but not random. It is characterized by expectations, corrections and constraints. For example, eco-system services ‘required’ by humans can be ‘under-provided’ by nature and then farmers face shortages. The farmer behavior is optimized based on expectation of delivery of soil ecosystem service. If the expectation is not realized, a discrepancy occurs. An initial discrepancy will have an impact on the willingness of farmers to deliver labor in exchange with soil microbial diversity services. Discrepancies and directions of change impact on probabilities of response. Only, finally, in a steady state, a reasonable match of expectation and delivery is presumed. In the model, it means a feedback loop has to be anticipated. Learning could go along the premise that the chance ‘π’ of receiving a gift as soil biodiversity service ‘z’ for a farmer depends on his last expected probability (chance). Adjustment is the difference between anticipated and realized eco-system services. So modifications of expectation take place on chances and adapted match of physical “delivery” in (1) (Pashigan, 1970). e f ,t f ,t 1 11[ f ,t 1 f ,t 1] 12 [ z f ,t 1 z f ,t 1] 13 [l f ,t 1 l f ,t 1] e e a e a e a (1) where: πe = probability; subscript: f: farmer, t: period, t-1: pervious period ; superscript: e: expected, a: actual z = soil eco-system service; subscript: t-1: pervious period; superscript: e: expected, a: actual l = labour devoted; subscript: t-1: pervious period; superscript: e: expected to be to delivered, a: actual The subjective assessment of chances ‘π’ will be used as indication of chances of receiving the gift (ecosystem service) in the objective function of farmers. 4) Rational of farmers for gifting 4.1 Programming overview For modeling the behavior of a farmer who offers a gift to soil biota and receives eco-system services as a gift, a linear programming (LP) approach is used. Instead of income maximization used in usual farm programming models, the current model works with effort minimization (Ellis, 2003) as the objective. Note, since a dual outcome of labor (effort) minimization is a benefit function, income maximization is dual to labor (effort) cost minimization under certain conditions. For our purpose the essential modification is the inclusion of a gift as a constraint. Here the gifts are labour provision for management practices that enhances better soil biodiversity services. For the reason to reduce complexity we further assume that farm gate prices reflect scarcity and perfect markets for food exists (De Janvry et al., 1991). Whence a primal problem of a linear programming approach can be: [ p f c] ' x f n n A x s.t. f n f rf where: x n f rf = choice of crops = constraints It results in a solution for farm activities xf, which is complemented with a dual problem of Lr f n s.t. n A ' nf f (2) f pf c where additionally: λn = shadow price for restrictions As shown, the method used to infer rationality of gifting and demonstrating how a gift response function is obtained, is linear programming (LP). LP is used to depict choices. Additionally LP can be expanded to quadratic programming (QP) by the statistical concept of maximum entropy (Following Paris and Howitt, 2000). In this approach a limited data set of constraints, objectives, and a representative farm technology are the only requirements to infer coefficients of a quadratic objective function of farmers. This specification can be used to derive supply and factor evaluation function (inverse of factor demand functions). These behavioral functions are linear by mathematical reasoning. Gifting to nature is added on the side of constraints. This perspective requires some amendments on the side of programming. First we have to decide on what a gift for nature is and what a gift of nature is, from the perspective of farming. [ p f c] ' x f n n s.t. A x f n ,l A x f n f n ,n A x f (3) rf n f n f lf lf t n ,o n ,n sn a of z h ,a f where additionally: z: soil biodiversity service l: labor as special constraint from r s: basic service as reference In this new set up, gifts for nature are deducted from the initial resource availability and gifts of nature are added to resource availability and quality. From the point of view of farmers, gifts of nature relax their technological constraints or augment trade-off opportunities. Again it is not a ‘free’ gift, because labor must be devoted. In our modeling problem, when the farmer offers labor for nature elements, the vector of change in species composition will be ‘gifted’, by nature. There can be a number of soil eco-system services gifted through species. For example, nutrient recycling, nitrogen fixation, augmentation of plant health etc are services of concern. From the programming perspective, the gift of nature can be considered as the relaxation of constraints expressed in the last equation of system (3). It has to be appreciated that gifting for soil biodiversity services requires changes in normal activities oriented towards food production. For that reason a new variable δxf = xf,t - xf,t-1 is introduced. It reflects an optimization of change in farm activities over time. Nevertheless, gifts, received and offered, are not a part of decision making, themselves, so far. However, they impact on decisions and activities. Activities may not change if costs are prohibitive. It means that a farmer can decide to be a conventional farmer or become a farmer who engages in gifting. To model these aspects, the dynamic adjustments in gifting will be directly modeled. Here by we weaken the position that gifts are exogenous. Though gifts in its very nature are exogenous and gifting is dependent on the probability of receiving a gift, it is also inevitable that farmers deliberate about the costs of change for gifts. An increasing probability of gifts in the form of biodiversity services can be associated with increasing costs of gifting through changes accomplished in farm activities. In the programming, this is addressed by an extension of activities viz. ‘change’ denoted by ∂, which request resources and allow adjustment. Moreover, we confine the analysis to the adjustment costs reflected in labor deliveries and to the probability of receipt of gifts. To depict dynamics of exchange, a two step strategy is adopted. . 1. Optimization without the dynamic aspect and receive optimal levels, for instance, at an average level of nature service availability. Alternatively, the case of no gifting can be taken. Important point is that one receives a benchmark. For the adjustment cost analysis, a constraint is identified as xfn,t-1 for a second optimization. 2. Optimization runs now with an expected gift delivery. Gifts are received with a probability. The tableau (4) gives an overview on the needed changes of variables which are then used for the Maximum-Entropy-analysis. This will be explained soon and it gives us the needed response function. c [1 f ][ p f c nf ] ' x f s.t. n A f xcf n ,l c A x f f f [p f cf c ] 'x n n A x n f f cf ' c ,c l ,c n ,l f n ,n A x f n f n xf n f A x f f A x x n f rf (4) lf lf n t f n ,c A x f n f n xf s n ,n n n xf n ,o a of z h ,a f t 1 The optimization of tableau (4) will allow us to specify gifting, its dynamics, and response contingent on probabilities of receiving the gift. This is important for reciprocity or even a depiction of the dynamics, itself. Cost of changes is denoted by ‘cд’. The core aspect of the inclusion of a gift from nature and gifting to nature is the relaxation of the constraints in ecosystem services (3rd constraint). Farmers will offer labor to get gifts and one should foresee labor costs which translate into opportunity costs via constraints. Farmers’ reference level of gifts to nature, ecological services (through a change in species vector) received as gift and appraisal of probabilities of their receipt can be used to depict their reaction function. This function is built in the optimization of farmers. As a further step in it’s delineation, one can link the change in activities of the ‘nature- gifting-farming’ to the expected change in the “gifted species vector” δsfh,a . The expectations are formed through learning. To give already an idea, we can use the third constraint in tableau (4) to see the link. Now by taking the derivative of the species delivery constraint and neglecting the second derivative, the relationship depicted (5) allows an expansion or contraction of activities according to A x n ,n n f f n ,n sn aof z h ,a (5) f It means that the farmer can optimize adjustment costs based on a likely change in the gifting of ecological services. It also means that farmers have to have experiences on functional relationships in nature. We depict this translation as a dynamic constraint. (Nevertheless, farmers do not do dynamic optimization in the model but optimize for periods as they face adjustment cost.) 4.2 Flexible response functions and Maximum Entropy (ME) To achieve the calibration of behavioral functions a Maximum Entropy (ME) approach can be employed. The aim of ME here is to translate a linear objective function into a quadratic function for analytical optimization. This function is consecutively subject to the definition of corresponding matrices. The quadratic approximation can reflect technology, behavior and can perform optimization, given the constraints. The constraints are implicitly reckoned by shadow prices λ. The linear objective function of farmers is, O f [ p c ] x 0.5 Q / 1 Q x / 2 0.5 x / Q x (6) 3 where: λ = shadow price for restrictions x = activity and b=Ax. This objective function enables a generic formulation of response functions. In an ordinary case of determining choices of food production, the objective function serves as basis for the incentive response function, such as the gross margins. For a representation of farm behavior towards incentives, we can obtain the derivatives to x and λ and determine the constraints for the ME analysis. The derivatives are: f b f A x O f O f x f A / Q f c 1 p Q 2 f Q 2 x (7a) f Q x (7b) 3 Note, underlined variables in the representation (7a and 7b) are variables obtained by the linear programming approach, where ‘x’ is the activity and ‘λ’ is the shadow price. The first optimization towards λ (7a) can be interpreted as a “demand” function for “b”, where Ax < b is the technological constraint. In that case the shadow price is linearly dependent on b and x. By using the second equation (7b) and elimination of x, b becomes dependent on price p (or the probability as we will see soon in our case). Let us explain the maximum entropy approach on determining coefficients through an example; The Cholezky factorization of the matrix Q gives, (8) Q L DL 1 1 / / 1 1 Whereby D is a diagonal matrix and L is a lower and L’ is an upper triangular matrix. Then, basically maximum entropy (Golan et al. 1996) works with a concept and a specification of probabilities ‘p’ that are used to find the most likely distribution function for the coefficients of L and D. The set of probable coefficients depends on the range of the coefficient (known a priory), specified by the matrix Z (support matrix). The number of observation can be even singular. L jj Z ( j , j , s ) P ( j , j , s ) / / L 1 s D i, j s Z D / L ( j , j ,s )P ( j , j ,s ) 1 with j, j/ = 1, …, J (9a) with s = 1, …, S (9b) 1 D 1 The Z coefficients are exogenously presumed according to plausibility. Relevant probabilities ‘p’ are maximized. For a mathematical solution of maximizing , a specification of the entropy function is necessary (10). This entropy function has to maximized given the constraints H j , j´, s s.t. A x A / P L ( j , / j , s ) log( P 1 L ( j , j , s )) P / ( Z L ,1 PL ,1) / ( Z D ,1 PD ,1) ( Z L ,1 PL ,1) z c p D 1 j ,s ( j , j , s ) log( P 1 D ( j ( Z L , 2 PL , 2 ) / ( Z D , 2 P D , 2 ) ( Z L , 2 PL , 2 ) ( Z L , 2 PL , 2) ( Z D , 2 PD , 2) ( Z L , 2 PL , 2) / , / j , s )) 1 x ( Z L , 3 PL , 3) / ( Z D , 3 PD , 3) ( Z L , 3 PL , 3) x (10) and (10) gives the needed information on the coefficients. The presented approach shall be applied to a gift exchange system with nature on basis of constraints in production ‘b’. So we get the coefficients as in (6). A more elaborated outline will explain the envisaged applications of the methodology described. 5) Application As already suggested, the broader aspect of decision making under dynamic assessments of likelihood for reciprocal gifting is to get flexible response functions. With the help of linear programming and Maximum Entropy one can translate decision making in gifting into a quadratic objective function. Coefficients can be determined and this enables us to derive general behavioral equations. In the next step is the inclusion of constraints posed by nature in the generated objective function. The objective encompasses (1) activities for farm production, (2) devoting of resources (labor as gift) for nature elements, and (3) receipt of gifts as species. The generated objective function is (11) O [ p c ] ' x x l z x o.5 x ' x o.5 l ' l o.5 z ' z o.5x ' x x ' l x ' z l ' z x ' l x ' x x ' z f f n n f f f n f n n f f 14 [r f , l f , s n t n ,n n f ,11 11 n ,o f f ,12 n ,o n f f h ,a f f 13 h ,a n ,o f f 12 n n f f 14 21 h ,a n f f 31 11 n n ,o f f n ,o n f f 32 22 n n f f n ,o h ,a f f 33 h ,a f h ,a 23 f n n ,o n h ,a , x nf ,t 1 ]' [41 x f 42 z f 43 l f 44 x f ] (11) where: lf = labor xf = crops zf = eco-system service From this objective function we can derive behavioral functions. By taking first derivatives to l, x, z and δx, a system of response emerges. Mutual gifting is part of this linear response. O f x f [ p c f ] f 11 11 x f 11 l f 12 z f 32 x f ' 41 r f 0 n n n n ,o n h ,a f O f l f 12 22 l f 11 x f 21 z f 31x f 43 r f 0 n ,o n ,o n (12) n h ,a O f x f 14 14 x f 31 l f 32 x f 23 z f 44 r f 0 n n n ,o n h ,a From the derived system (12), we can eliminate the x and then equations (12) can be reduced to (12a) and (12b). Probabilities are exogenous to the farm but endogenous to the system. Gifts to nature ‘l’ are dependent on the expected gifts ‘z’, received gifts ‘r’ and probability ‘π’, and the change in species vector ‘∂x’. Farmers’ behavioral response (12a) is identified. l n ,o f ,t * 12 * 11 e f ,t 12 z f ,t 12 * h ,e * z h ,e f ,t 12 sn 12 r ft * n ,n * (12a) Since equations are associated to a time period, the difference between two periods can be analyzed. Then a relationship emerges which is a reduced form linking change to optimality. l * n ,o 21 f 22 f ,t 23z f 24 r f 25 sn 25 z n 25 l f 0 * e * h ,a * h ,a * n ,n * n ,n * n ,o (12b) The response function (12b) contains three variables (π, z, r) which are endogenous to the system. They are not time invariant variables because we use expected availability of a gift from nature. But notice that we maintain the distinction between “a” for actual and “e” for expected. Now we can add the learning procedures written in the mode of a difference equation. e f ,t [1 11] f ,t 12z f ,t e h ,e (13) The result is a dynamic behavioral system on the side of farming which includes gifting as a reaction to learning how nature behaves. From the point of view of farmers, additionally, a shadow price can be assigned to gifting. Nevertheless, the willingness to relax the constraints depends on optimization. Structurally one can receive similar results if one uses profit maximization or effort minimization. The above approach can be eventually supplemented with decisions how to close the model. 1. One could simply take the food need as exogenous and then model primarily the substitution between human labor and eco-system services aiming at food. 2. It is then possible to supplement the farm supply side approach by a demand side approach for food. We can consider food prices endogenous in the supply modeling. This would give us an association between food prices and food availability through nature. Food provision becomes dependent on eco-system services. 3. Also, a simplistic approach on a carrying capacity can translate food availability to numbers of humans, i.e. the effect of population on functioning of eco-systems. 6) Gifting of biodiversity services In addition to farmer’s behavior of optimizing his objective function, it is assumed that nature optimizes its behavior to achieve an optimal fitness. This is a key aspect in understanding gifting. In the case of nature, energetic efforts for food acquisition by species are minimized. This premise is adopted from Pethig et al. (2006) though similar arguments present in various studies (Finnoff and Tschirhart, 2003). It should be noticed that it is a working hypothesis (Eicher and Pethig, 2006), though it has shown already its potential in system analysis and prediction (Pethig et al. 2006). By this working hypothesis of optimization we can make verifiable predictions on behavior and system understanding. It can be understood, on the species level for instance as feeding strategy, but also on the system level. Generally, we presume that nature “designs” a species vector which correspond to a maximum attainable ecological fitness, given the constraints. This assumption follows Eicher and Pethig (2006), whose approach is modified using a programming approach. The essential step is to get a behavioral response from nature in the gift exchange. The calibration of such a behavioral function can be based on energy flows accounting in food webs. For instance, reconstruction of a food web under the strategy of minimizing energetic losses through species can indicate a particular species composition. The analogy is the revealed preference in economic modeling. Our positivistic research component is: retrieving behavior from observation. It shall enable us hitherto to make suggestions or envisage a future mutual beneficiary gift exchange, based on reciprocity and inference. A brief discussion on the initial state of ‘soil’ which is the background of gifting for soil ecosystem services is required for further deliberations. Two very distinct situations may prevail. In a first case a virgin soil where all functions is under control of nature can be perceived. In a second case a deprived soil might be the starting point. In the presence of human induced constraints, the prevalent species composition is eventually a second ‘best’ solution due to ‘deprivation’. An initially better performing nature might be perceivable, but normally the reference is an already badly ‘performing’ nature. Hence, modeling is contingent on state. Since a nature in poor conditions is most prevalent in interactions of humans with nature, gifting offers a choice for improvement. 6.1 Programming the biodiversity services Formally, the objective function of desired ‘energy retention’, i.e. minimization of energy loss is reached by modulating species composition. The approach can be conducted from two angles: first ‘cost’ (energy) minimization and second ‘revenue’ (fitness) maximization. It is assumed that every species contributes to a certain amount of energy retention at individual level and to a certain degree of a loss of energy at system level. For instance, feeding and growth means dissipating energy to a certain percentage of already accumulated energy. Then a new vector of species is accommodated on a second trophic level of the food chain. The choice of species vector is dependent on energy (organic matter) transfer between trophic levels that are optimized. (Static in the model, for dynamics see Gutierrez and Regev, 2005). In the case of soil biota, organisms at the lower trophic level feeds on organic matter and then the dead microbes are fed by organisms at upper trophic level and release the nutrients. In this process they release various enzymes, hormones and substances that perform various biological functions (Altieri, 1999). For the purpose of simplifying the analysis, we see a fixed delivery of organic matter from the lower trophic level to the upper level. Also for simplicity, we assume this lower level of species composition is already given. The subset of micro organism species at upper trophic layer represents the gifting component of nature (ecosystem service). It means a labor contribution in terms of land management practices by humans (more service) is ultimately rewarded by a shift in the ‘optimal’ species composition. This can be seen as reciprocity of nature because the resource constraint of nature is lifted by gifts from humans. In the presented model only species of the upper trophic level are of interest for humans. The ‘optimization’ represents a selection at a higher level and at the expense of those species at the lower trophic level (Pethig et al. 2006). The system is bound also to abiotic factors. The gift of humans to nature eases limitations in processes of organic matter conversion because it addresses the restraints. In principle, a number of land management practices could be of benefit for nature. For example human labor for erosion prevention as well as soil protection and practices such as minimum tillage, crop residue addition and crop rotation etc. can relieve stress of nature in farming systems (Altieri, 1999). A vector of gifts reaches nature. In response, a parallel vector of important species for humans is envisaged. The advantage of using this approach is that we can generalize the programming framework towards an inclusion of deliveries of ecosystem services. The deliveries are firstly given exogenously, as requested set of species. In this respect fitness (or better expressed efficiency of nature to transmit energy, which is the skill of an eco-system to organize itself) is defined as the possibility to (re)produce a set of upper trophic level species at minimal loss of energy. Fitness can be enhanced by land and labor contributions. A stepwise identification of ‘optimality’ shall help to establish functions. As before a starting point is a reference ‘nature’ which minimizes ‘c’ that is the energetic loss if higher trophic level microbial species (Sn) is feeding on microbial species (xn ) at lower trophic level. It is a minimization problem (14). L c ' x s.t. A ' x s n n n n (14) n ,a where: xn = species of lower trophic level that are used by higher trophic level Sn = species of higher trophic level The species vector sn is a revealed “preference” of nature. In conjunction with ME optimization it serves as a quasi statistical tool to reveal nature’s preference for the species vector as an output. Input side preferences, which imply the dual of the above primal, are to be revealed for a more comprehensive analysis. Dual and primal programming problems are necessary to retrieve coefficients for behavioral equations (PMP/ ME). For the dual, maximization applies, in case the primal is minimization. V s n,a ' n A ' s.t. n n (15) c n where: λn = shadow ‘price’ measured in energy units In this basic setting nature is independent from humans. In fact, we have to supplement the constraint of the value generation by the availability of resources y. A vector of deliveries V s n,a ' co ' y n n A ' s.t. n c n 1 n A2 ' n B ' y n n n r (16) n where additionally: yn = resource species for determination by lower bound cn = per unit species for determination by lower bound rn = resource constraints is supported by the resource constrained species optimization of the lower tropic level. If system (16) is resource oriented, starting with the dual, it is suggested that a similar primal (17) exists: L c ' x r ' n n s.t. A x n n n n B 1 n ,a o s B n 2 o (17) o o c where additionally: λo = shadow price for lower bound This new primal problem can be interpreted as a description of “value” creation for nature. Here co is the ‘value’ of organic matter per species at the lower trophic level. As in the initial primal solution the observable output of the natural system “s” and “r”, as inputs, are bench- marks. This gives us the fit of the model, which presumably is calibrated for an ecology found under semi-natural conditions. The idea, again, is that species and species diversity is “reconstructed” in a modeling approach, presuming minimization of energetic loss in the system. Having calculated interactions and the behavioral background for an ideal, though “stylized”, nature we can amend the behavioral description of this nature by the inclusion of gifts. Gifts are given away to humans and gifts are received from humans. Given gifts, GG, are specified as change in the output structure, and received gifts, RG are specified as changes in the input structure. V s n,a ' co ' y n n A ' s.t. n n B1 o c n n B 'y n n n 2 n r C 'y l n n l (18) For the time being, in the dual problem statement and in the amended version, ‘l’ is included as a vector for deliveries (labor). Through including ‘l’, complementary constraints given by the initial situation are substituted. Through the relaxation of the initial constraints on the input side, the requested species vector for humans zh is now received. From the primal of minimizing efforts, the dual on delivery of a specified output vector; i.e. the inclusion of a desired output of species is framed. L c ' x r ' s.t. A x Dx n n n n n s n ,a n h 1 n o n z o n n A2 x B c o where additionally: zh = upper bound for desired species (19) The above presentation reflects a full integration of nature in the exchange system. As initially said, the idea is to model a gradual revision of chances from zero participation to full participation, expressed as probabilities πn and counter probabilities (1-πn), and reckon the knowledge on probabilities as a driving force for participation or strategic choice. In this vein a generalization as in problem (20 and 21) enables the complete setup of the primal and dual optimization. L [1 n]'[c ' x n s.t. c c c n n A x n r ' n ] n '[c ' x n c n n n n n n n A x D x B n n n r ' n n n cad ' n B n o x ] n n A x a n n n o s z (20) n ,a h c o n xf x nn t 1 x nn Min! and V [1 n]'[s n, n' nn co ' y nn ] n[s n, a ' s.t. n n A ' nn c n co ' A ' cn n B 'y n n n C 'y y c n ca ' y ] a n c B ' y ' B y n c C 'y c (21) n n a a C y a a n n r a n n l Max! As before, the analysis is supplemented by a cost of change approach. Cost in a nature context refers to an additional loss in energy if the vector of species offered by nature changes. Hence, in the same vein of wording, nature tries to minimize additional cost if it has to adjust. For adjustment we introduce δxnn as an additional variable in optimization. For a comparison with the analysis of the programming of the farm, the nature approach is reduced to the representation the gifted labor which augment the set of technologies pursued. C ' y C y l n n a a n n l (22) 6.2 Flexible response and Maximum Entropy The outline on obtaining Maximum Entropy (ME) coefficients in a quadratic objective function from the linear specification is similar as in the case of farmers. In the case of nature, the optimization is minimization of energy losses. Moreover, the new species vector is a response to gifts from humans. Both, species and deliveries, are subject to adjustments. To maintain symmetry we consider the constraint with respect to received labor as the prime criteria for adjustment of costs. The impact is that the new variable δxnn is a further activity to be included. The quadratic behavioral equation of nature has to be built on the optimization results of sn, yn, λn and λo given constraints sh, sn,a, rn, and lfn. I.e. using internal knowledge on technology as coefficients, the system reduces to a constraint variable problem. As before the constraint variable problem delivers a reduced form objective function as partial solution for the internal optimization of activities and shadow prices as in objective function: O x y x y y l z x ' x y ' y (23 y ' y l ' l z ' z x ' y x ' y x ' l x ' z y ' y y ' l y ' z y ' l y ' z l ' z [r ' , s ][ x y y l z y ] n n n n 33 n ,l n 31 n ,l n ,a n n n n ,l 11 n n n n n f n n ,l n n n n ,l 12 n n 44 32 n 55 f 34 n n 21 n ,l 21 n n n n n n 63 n n 31 n n ,l n n ,l n ,l 62 n n n n n ,l 61 n f n ,l n ,l 11 f 23 42 n n n n ,l n n n ,l n n n n f 11 n n ,l f n 24 n ,l n ,l n n n ,l 22 n n 25 n n 51 n n ,l n 65 n n f 51 n n n n 64 f n ,l n 41 n 41 n 66 n ) The focus is now on an optimization towards “yielding” energy and the optimal use of energy, notably on the second trophic layers. This determination of an objective function for soil ecosystem helps us to establish an empirically retrievable analysis to describe a behavioral equation system of nature. It includes responses to gifts and provides ecosystem services. In response to gifting by humans lf nature offers sfe,o. The response is driven by expectations πne. To clarify, because we still have a coordination problem, (24) On xn 11 n ,l n n y l z r 11 xn 21 y 23 n ,l n ,l 11 n n n 24 n n 25 f n 61 n ,l n 71 sn 0 n ,l … On n ,l y n 12 n n y l z r 22 y 21 xn 31 n ,l 21 n ,l n n n 32 n f n 34 n 62 n ,l n 72 sn 0 (24) n ,l is the mathematical expression of “behavior”. Elimination of x and y offers a reduced form * 11 n y ' z l ' s 21 * 11 n * h * n * n ,a n 23 n 22 f 23 n 22 r n ' * n (24a) This form is based on probability of receiving a gift. Note that the change can be translated into labor change C 'y y l n n c n l and the equation for the second response and optimality criteria switches to: * 11 n * 11 l ' z 21 * n * h, g f 23 n 22 l f ' 22 sn 22 r n * n * n ,a * n (25) Hence this version of dynamic behavioral optimization recognizes the labor offered and the response function (25) is dependent on exogenous variables characterizing the soil ecosystem. For the ecological side the probability is reflected by an adapting process: e t ] [1 11 e t l 12 n,e f, (26) Apparently these three conditions offer an access to an anticipated change in gifting of ecological services from nature. The aspect of adapting in nature is part of evolutionary processes and adjustment in ecology can be also understood as system adaptability to the conditions provided by human gifting (comparable to learning from human point of view). Though there could be disputes on adaptive capacity of nature, it should be possible to get responses, given the built in objective function. In the given case only marginal changes in the species composition are expected. 7) Dynamics and equilibrium To simulate the convergence in gifting, the response functions have to be combined with learning and adjusting behavior. The change in activities in order to gift and receive gifts (change in farm activities in response and adjustment in nature (adaption)) is the core to establish a dynamic equilibrium. The first step in delineating the convergence is to spell out the variables that are endogenous to the adjusting system. The description of the willingness to cooperate on the basis of a mutual gifting scheme is characterized by five variables viz. z, r, l, π, and s. Moreover, conditional variables are represented by lagged variables (one period). The equations that contain the behavioral response are, l n ,o f ,t l * * n ,o 21 f 12 * 11 e f ,t 12 z f ,t 12 sn 12 r ft * * h ,e n ,n * (27a) 22 f ,t 23z f 24 r f 25 sn 25 zn 25 l f 0 * e * h ,e * h ,a * n ,n * n ,e * n ,o (27b) n [1 11] f ,t 12z f ,t 123l f , * 11 e * 11 l 21 * n,e f ' 23 zn 22 l f 22 sn 22 r n e f ,t e n,t ] [1 11 * h, g * h ,e e n,t n ,e l 12 n,e f, n ,e * n ,a * n (27c) (27d) (27e) In this, system variables represent changes on ecosystem services from nature and changes in labor provision by humans. Offers for labor and expected changes of soil ecosystem services are retrieved from past experiences (learning). Nevertheless, the expected and actual deliveries are not equated while a balance in changes is visualized. Such a balancing can be represented by the equation, z 21l f ,t 2 22 l f ,t 1 [1 21][z f ,t 1 z f ,t 2] h ,a n ,o * f ,t 1 n ,o * h ,a * (27f) h ,a The condition (27f) spells out humans’ anticipation in gifting, i.e. receiving eco-system services for labor. Importantly, by (27f), the observed change in receiving eco-system services is linked to changes in labor offered. Equation (27f) is an ad-hoc statement; no theoretical reasoning is provided. Here a gradual shift occurs with respect to the acceptance of collaboration and change in strategies through learning of probabilities. The system is driven by learning. Then, six variables are to be accommodated for a steady state or equilibrium process. l n ,o f ,t l * * n ,o 21 f 12 * 11 e f ,t 12 z f ,t 12 * * h ,e z z 21 * n,e f e n,t h ,a f ,t 1 * h ,e * h ,a ] [1 11 * n ,n * h, g h ,e e n,t * n ,e * n ,a (27a) n ,o n ,e l 12 * n ,o This can also be presented as n n ,o (27e) n,e f, * * * (27d) n ,e 21l f ,t 2 22 l f ,t 1 [1 21][z f ,t 1 z f ,t 2] * * ' 23 zn 22 l f 22 sn 22 r n e f ,t n ,n (27c) * 11 l * [1 11] f ,t 12z f ,t 13l f , e * e 12 sn 12 r ft (27b) * n * f ,t 22 f ,t 23z f 24 r f 25 sn 25 zn 25 l f 0 11 h ,e h ,a h ,a (27f) 0 * 21 * 22 *21 13 * 12 * 1 21 1 * 12 * * * 23 22 11 1 1 12 12 1 * 23 * 23 * 23 * 43 * 53 * 63 a lf 0 e * l n 25 h ,e zf - * n.a 22 zn e f e n n.a z n n ,l r n r f t l f n ,n sn n an n c e c * 12 * 23 * 23 * 23 1 1 11 f 12 1 11 n 1 a l f e l n h ,e = z f n.a zn e f e n n.a z n (27) The system (27) is a system of seven sub-vectors which constitute the differential equations. In principle the system can be solved by dynamic analysis. At least as a technical solution, the dynamics and equilibrium between the willingness to gift and to receive a gift can be obtained. A simplistic solution is to assume that in equilibrium changes ‘δ…’ are zero (steady state). Then the above system is A1δy + A2y = A3x A2y = A3x y = A2-1A2x (28) The meaning of this solution is that a probability exists with regard to humans, which is optimal. Both, humans and nature maximize expected returns from gifting. For soil microbial eco-system either fitness is maximized or energy losses are minimized. Again, these two pairs in the argument are dual. Here, this goal of nature (like in Eicher and Pethig, 2006) is extended by the concept of an ‘evolutionary’ learning. Probabilities of alternatives reflect the spectrum for selection of an ‘optimal’ species vector. The shifting in species composition by nature as a response to the ‘gifting’ of labor by humans (notable as reciprocal for gifts) implies a change in the importance of species. The important point is that ‘evaluation’ by nature can be anticipated which alters the spectrum of quasi goal oriented natural selection (adaptation). ‘Valuation’ from the side of humans was a shadow price valuation of gifts from nature and nature ‘values” the exchange of gifts through increased fitness (reduced energy loss). For further discussion: the Pethig hypothesis is extended for an inclusion of dynamics and ‘learning’. Putatively, in nature, there may be better principles of fitness adaptation, which go beyond the subject matter of this paper. Extending the similarity between humans and nature, for anticipating exchange and maintaining, the fitness hypothesis, for the moment, is considered sufficient for information gathering. New priorities of resource use come as adaptive learning (natural selection) process in nature. The simple consequence is that ’valuation’ shifts chances in nature to create better adapted species composition. This is the major premise in this article. 8) Summary This paper has presented a new approach to the delivery of soil eco-system services and evaluation of nature in a gift exchange framework. The approach is based on the concept of a gift economy as opposed to a valuation through a market. Gifting is to be mutually conducted and a mechanism is presented which offers a coordination of gifting. The paper firstly presented a programming approach which includes gifts and gifting from the human side. For instance, gifts from soil biota are considered as ecosystem services in farming. Farmers are offering labor in exchange (reciprocation) to ecosystem services reflected by the microbial species vector. This provision is transferred into a non-linear analytical function under the Maximum Entropy approach. Hence a flexible response function as a tool for gifting optimization is obtained. The idea of a gift response function is also applied to nature. Soil ecosystem is considered as fitness optimization unit and the optimization is supplemented by gift exchange. Here also, firstly a linear programming approach is suggested and secondly this approach is transferred into an analytical function. From this quasi objective function, a linear response function for nature towards incremental gifting of eco-system services as response to the receipt of labor can be derived. Finally based on the response functions it is shown how the dynamics can be used to obtain a steady state which can be regarded an equilibrium. 9) References Anderson, T. and Hill, P., 2002. Cowboys and Contracts. The Journal of Legal Studies, 31/2: 489-514. 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