In Search of Optimal
Institutions for Natural
Resources Management
By M.K. (Marty) Luckert
Presented to the Centre for International
Forestry Research (CIFOR)
Bogor, Indonesia, March 25, 2009
1
Introduction
 Optimism in the 1970s regarding institutions:
“Substantial advances have already been
achieved and the literature gives evidence of
continuing vitality and promise of future
accomplishments.” (Furobotn and Pejovich 1972)
 Nobel prizes to institutional economists
(Myrdal and von Hayek, Buchanan, Coase,
Fogel and North)
 “We can make optimal institutions!”
2
Introduction….contd
 Bromley (2001) says, not likely:
“As for linking property rights to ‘economic
behavior’ I now believe that this will be a difficult
if not impossible task. There are simply too
many intervening variables--time preference
rates, age of individual (somewhat related to
time preference, income, etc. etc. etc). I wish
you luck, but I am now skeptical that anything
coherent will be found.”
3
Introduction …contd




What happened???
Complexity
Objective: investigate sources of complexity
Draw on examples from Developed (e.g.
Canada) and Developing (e.g. southern
African) countries
 Mostly Economics, but some other
disciplines
4
Overview




Key Terms (NRM and Optimal Institutions)
Problem Areas
Potential Ways Forward
Conclusions
5
A Tribute to J.K. Galbraith (1908-2006)

 “We all agree that
pessimism is a mark of
superior intellect.”
 “When people are the
least sure, they are
often the most
dogmatic.”
 “Ideology is just an
escape from thought.”
6
Key Terms: Natural Resources Management
 What is Good NRM? Is it just Sustainable
Development?
 Negative definition:
 Where we are going, not where we have been
 Different for everyone: “Beauty is in the eye of
the beholder”
7
J.K. Galbraith on Beauty

“There is certainly no
absolute standard of
beauty. That precisely
is what makes its
pursuit so interesting.”
8
Key Terms: Natural Resources Management
 Positive definition:
 Broader values than marketed resources
(economic, social, cultural)
 Tradeoffs
 Ecosystem health, integrity, and biodiversity at
multiple scales
 Adaptive Management
9
Key Terms: Optimal Institutions
 Cortner et al. (1994):
 “Expressions and mechanisms of collective
experiences”
 North (1993):
 “the rules of the game”
 Rules of process
 Resulting rules (i.e. Property Rights)
 not organizations
 Most Economic studies in NRM concentrate on
Property Rights
 Does the constrained definition makes finding an
optimum tractable?
10
Key Terms: Optimal Institutions and
Natural Resources Management
 NRM as an institution?
 Rules of process
 Rules of results
 With Criteria and Indicators rules of process
became rules of results
 Differences between processes and results are
blurred
11
Difficulties in Pursuing Optimal
Institutions for NRM
12
The Typical Model
Institutions/
Property Rights
I1
I2
.
.
Ij
Firm Behaviour/
Allocations
A1
A2
.
.
Aj
Welfare/
NRM
I1
I2
.
.
Ij
 Non-Uniqueness of Pareto
Efficiency
 Constrained Welfare
Maximization Problem,
solve for FOCs?
13
J.K. Galbraith on Predictable Behaviour

“The real accomplishment of
modern science and technology
consists in taking ordinary men,
informing them narrowly and
deeply and then, through
appropriate organization,
arranging to have their knowledge
combined with that of other
specialized but equally ordinary
men. This dispenses with the need
for genius. The resulting
performance, though less
inspiring, is far more predictable.”
14
Problems with the Typical Model?
 Complexity in the components
 Complexity in what is not in the picture
15
J.K. Galbraith on Complexity

“One of the greatest
pieces of economic
wisdom is to know
what you do not know.”
16
The Typical Model
Institutions/
Property Rights
I1
I2
.
.
Ij
Firm Behaviour/
Allocations
A1
A2
.
.
Aj
Welfare/
NRM
I1
I2
.
.
Ij
 Hierarchies
 Difficult to describe
 Dummies (e.g. public vs. private)
 Characteristics (e.g. exclusiveness)
17
The Typical Model
Institutions/
Property Rights
I1
I2
.
.
Ij
Firm Behaviour/
Allocations
A1
A2
.
.
Aj
 Right amount of controlled
variability?
 What is the firm?
Welfare/
NRM
I1
I2
.
.
Ij
 Socio-economic effects?
 Time preferences?
 Risk preferences?
18
The Typical Model
Institutions/
Property Rights
I1
I2
.
.
Ij
Firm Behaviour/
Allocations
A1
A2
.
.
Aj
 What Criteria for NRM?
 Pareto Efficiency?
 Equity?
 Environmental Integrity?
Welfare/
NRM
I1
I2
.
.
Ij
 Do we lack criteria to
define an optimum?
19
An Expanded Model
Institutions/
Property Rights
I1
I2
.
.
Ij
Firm Behaviour/
Allocations
A1
A2
.
.
Aj
 What is the direction of
causality? (e.g. security)
Welfare/
NRM
I1
I2
.
.
Ij
 Economic Behaviour
affects the evolution of
property rights
20
An Expanded Model
Institutions/
Property Rights
I1
.
.
Ij
 e.g. ENGOs
Organization
Behaviour/
Strategies
S1
.
.
Sj
Firm Behaviour/
Allocations
A1
.
.
Aj
Welfare/
NRM
I1
.
.
Ij
 Why do we
frequently
ignore them?
21
J.K. Galbraith on Organizations

“Any consideration of the life and
larger social existence of the modern
corporate man begins and also
largely ends with the effect of one allembracing force. That is organization
— the highly structured assemblage
of men, and now some women, of
which he is a part. It is to this, at the
expense of family, friends, sex,
recreation and sometimes health and
effective control of alcoholic intake,
that he is expected to devote his
energies.”
22
An Expanded Model
Institutions/
Rules
I1
.
.
Ij
 Public Choice
Considerations
Organization
Behaviour/
Strategies
S1
.
.
Sj
Firm Behaviour/
Allocations
A1
.
.
Aj
Welfare/
NRM
I1
.
.
Ij
 Utility from
processes
23
An Expanded Model
Institutions/
Rules
I1
.
.
Ij
 Transactions
Costs
Organization
Behaviour/
Strategies
S1
.
.
Sj
Firm Behaviour/
Allocations
A1
.
.
Aj
Welfare/
NRM
I1
.
.
Ij
 Belief
Systems
24
Potential Ways Forward
 Define and analyze property rights in terms
of key attributes
 Incremental advancements in economic
behaviour by finding controlled variability
 Economists can help define NRM Criteria
 Explore reverse causality
 Consider Public and Social Choice
perspectives concurrently
25
Potential Ways Forward
 Rich history in considering transactions
costs
 Little done on belief systems, preference
evolution and formation
26
J.K. Galbraith on Creativity

“Economists are
economical, among
other things, of ideas;
most make those of
their graduate days
last a lifetime.”
27
Conclusions
 Despite significant advances the ability of economist to
specify an “Optimum Institution” for NRM is heavily
constrained
 No FOCing way
 Institutions and organizations must evolve as reflections of
belief systems if they are to be supported by the society
that is creating them (North 1993)
 Stigler and Becker: “De Gustibus non est Disputandum”
 Should an economist be less of a policy advocate, and
more of a policy analyst?
28
Conclusions
 Contribution will depend on relevance of
theory and empirics
 Our ability to contribute is greater in
developed than in developing countries
 Less of a role where we are needed most
29
J.K. Galbraith on Difficult Questions

“The conventional view
serves to protect us
from the painful job of
thinking.”
30
Conclusions
 Economists have enjoyed benefits of
reductionism
 Consider benefits and costs of reductionism
relative to the benefits and costs of more
holistic thinking
31
J.K. Galbraith on Specialization

“Much literary criticism
comes from people for
whom extreme
specialization is a
cover for either grave
cerebral inadequacy or
terminal laziness, the
latter being a much
cherished aspect of
academic freedom.”
32
Conclusions
 Without this consideration we risk being
precisely wrong or precisely irrelevant
33
J.K. Galbraith on the Relevance of
Economists

“Economics is
extremely useful as a
form of employment for
economists.”
34