8.3 Common property resources in the context of pervasive factor-market imperfections

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In the applied research literature dealing with CPRs, attention is not infrequently called to various factor-market imperfections that are pervasive in rural areas of many developing countries. These imperfections are purported to lend a crucial justification to the CPR institution at village level. It is therefore important to take cognizance of the underlying arguments in order to have a more complete view of the possible advantages of common over private property. The imperfections mentioned usually concern three rural markets: those of labour, insurance, and credit. We will examine each of these in turn even though the corresponding arguments often come down to stressing that CPRs play an essential social role by helping to prevent marginalization of people.

Lahour-market imperfections

The point here is that perhaps the most important role played by CPRs in developing countries nowadays is that of an employer of last resort and as a vital source of income for the rural poor. Thus, for example, in an in-depth analysis of eighty Indian villages located in semi-arid areas, Jodha has found that as much as 20 per cent or more of the incomes of poor families are directly generated out of use of local CPRs in seven out of twelve districts examined on this count (Jodha, 1986: 1177; sec also Jodha, 1992: 10-19). Moreover, in five semi-arid districts located in four different states, CPRs were estimated (at the beginning of the 1980s) to provide to the poor exclusive employment for 43 49 days per household or 18-31 days per adult worker during the year, that is, marginally more than the days worked on their own farms (this is in addition to part-time employment when CPR-based activity was undertaken casually while performing other jobs). Note also that, in most districts, CPRs were the only source of employment for 23-30 per cent of the total days for which the adults of poor households would otherwise have been involuntary unemployed (Jodha, 1986: 1174-7).

Other authors like Das Gupta (1987), Agarwal (1991), and Beck (1994) have also laid emphasis on the fact that in many parts of the Indian subcontinent, access to a wide range of communal (natural) resources is still a critical informal security mechanism whereby the deprived sections of rural populations can survive when they are recognized members of the village community where these resources are located (see Table 8.1 adapted from Das Gupta's intensive study of two Indian villages and from which it can be seen that free collection of products from local CPRs is more widespread in the village less advanced in terms of adoption of the new agricultural technology). The existence of this informal security mechanism is actually considered by Das Gupta as a major reason behind the high rate of population retention in India's rural areas or, what comes down to the same thing, behind the comparatively low incidence of distress migration in the country.

Table 8.1 Incidence of community-support mechanisms based on free collection of products from local CPRs in two Indian villages, 1984

  Rampur (a modern village located on the Delhi-Haryana border) Azamgarh (a comparatively backward village in Eastern UP)
Percentage of households
Green fodder 67.3 81.8
Leaf vegetables 95.9 98.2
Fish 41.8
Fruit 25.5
Buttermilk 57.1
Agricultural waste 67.3 98.2
Firewood 96.4
Dung 21.8
Dry leaves 7.3
Clay 77.6 96.4
Thatching 94.5
Bamboo 20.0

Note: Adapted from Das Gupta (1987: tables 2 and 4).

The range of products available from village CPRs and required for current subsistence needs is often much larger than that indicated in the table. Communal resources may thus serve 'as a source of various types of food, medicinal herbs, fuel, fodder, water, manure, silt, small timber, fibre, house-building with handicraft material, resin, gum, spices, and so on for personal use and safe' (Agarwal, 1991: 182).

In the rural areas of East and South-east Asia community mechanisms for redistributing access to productive resources appear to be stronger than in India (Hayami and Kikuchi, 1981; Hayami, 1981) and this certainly holds true for Sub-Saharan Africa, where access of community members to local CPRs as a mechanism of last-resort employment is perhaps more dominant than anywhere else (see Freudenberger and Mathieu, 1993: 12). In contrast, the rural poor in Latin America appear to have few community support mechanisms available to them: in many areas, village communities 'have not developed deep-rooted rights of members to live in and partake of the available economic opportunities the community offers' (Des Gupta, 1987: 117).

As will be amply illustrated at a later stage (Chapter 10), absorption of additional resource operators may or may not be achieved through a greater intensity of use of the CPR. In the latter case, a given level of resource flow is shared among a growing number of people, usually through some rotation system. In the former case, accommodation of new operators is liable to give rise to a 'tragedy of the commons' although, placed in this perspective, the situation hardly appears as a genuine tragedy. Indeed, as explained by Bromley:

The problem quite often, is that these resource systems are asked to absorb the very people who cannot be absorbed by the more conventional agricultural regimes found on private lands . . . the marginal ecosystems are asked to take on those slaughed off from the highly commercialised lands, the exclusion rights that run with fee-simple land redirect people to the marginal ecosystems. It hardly seems fair to condemn those resource complexes for failing to do what the commercialised ecosystems cannot do. (Bromley, 1986: 594)

Note that, in the example referred to here by Bromley, the privatization process has not been complete and overexploitation of the remaining common lands has resulted.

In conclusion, there is abundant evidence to show that village-level CPRs often assume critical importance for the livelihood of the rural poor in developing countries. To these people, they may indeed serve as a indispensable source of part-time or full-time employment and income. In a context of severe shortage of employment opportunities, any attempt to establish or restore efficiency in CPR management through a privatization programme may therefore have socially catastrophic consequences. The problem obviously arises because 'overexploitation' also means overemployment, and, in the absence of any other employment opportunities and of a smoothly running labour-market, it should not be blamed or even corrected, except in those instances where it leads to a degradation of the resource base. Figure 8.9 illustrates the differential employment opportunities created by a profit-maximizing strategy (LP) on the one hand and an employmentmaximizing strategy (LE) on the other hand. We assume the wage rate to be fixed at the subsistence level w.

FIG. 8.9. Comparing the employment generated under a profit-maximizing and an employment-maximizing management

Against the above background, it is easy to grasp the strong relevance of the aforementioned result concerning the difficulty for a group or community to regulate CPRs through exclusion of some of its members. To recall, risk-averse resource users may never agree to a scheme in which regulation of a CPR is achieved through the exclusion of randomly selected members of the user group. True, the most well-to-do people in the village may voluntarily waive their customary use rights because they have now obtained access to more productive employment opportunities. Yet, the problem is likely to remain to the extent that new employment opportunities do not expand as rapidly as rural population so that the absolute number of villagers dependent on local CPRs for subsistence increases inexorably.

Insurance-market imperfections

The insurance role of CPRs is stressed by some authors. According to this view, in the absence of properly functioning insurance markets, CPRs enable agents performing a similar productive activity to pool risks. This is noted to be a particularly important function where the resource itself is subject to wide spatial variations in yields, such as grazelands.

For example, in the tropical and subtropical rangelands of the Sahel and East Africa rainfall varies considerably from year to year. But, more importantly, rainfall is unevenly distributed over an area in any given year. Rain is usually produced in this region by individual storms creating narrow rainfall paths with inter-storm areas remaining quite dry. Wallen and Guvynne (1988: 27) note that in parts of Kenya, these storms rarely exceed five kilometres in width and are normally less than one kilometre wide. As a result of this pattern of rainfall, a traveller on horseback during a single day in the rainy season can easily pass through several spots that are saturated with water and full of grass and others that have not received any rainfall. The proper utilization of such pastures requires that livestock producers have the freedom to move animals over a large area in order to efficiently use available forage resources. Masai herders in East Africa must have access to between 120,000 and 200,000 hectares of rangeland to be able to cope with this situation. (Gilles and Jamtgaard, 1981: 132-3; see also Wiessner, 1982; Cashdan, 1985; Wilson and Thompson, 1993: 305-0)

The risk-pooling function of CPRs can be captured more formally in the following way. Suppose that the commons can be divided into n grazing areas within which rainfall is evenly distributed. Across each of these n grazing areas, rainfall would vary substantially. Assume also that the variability in rainfall is the same in each area (i.e. s 1 = s 2 =. . . = s n). Standard calculus yields the following expression for the total variability of precipitation over the whole area:

where r is the arithmetic mean of all the correlation coefficients, r ij, for any pair (i,j) of a share 1/n of the commons of grazing areas. Individual variability is therefore:

It is evident from the above last equation that s i2 falls as n increases or r decreases.

However, contrary to a view commonly held, risk considerations alone are not sufficient to explain why private property should be inferior to common ownership. For instance, one could think of parcelling out the entire grazeland into small, appropriately scattered pastures so that, by possessing a large enough portfolio of them, each herdsman can be effectively protected against the risk of income shortfalls. If such an alternative is not feasible, it must necessarily be because costs of enforcing private property rights are too high relative to the land yields. In other words, it is only in so far as they are combined with high enforcement costs and low resource productivity that insurance motives can make common ownership more desirable than private property. Alternatively, one could think of bringing the entire grazeland under the private ownership of a single owner who would then lease out grazing rights to the herdsman. In this case, the comparative inefficiency of private property is to be explained by the combination of the monopoly argument and risk-pooling considerations (risk minimization implies the creation of a monopoly).

CPRs also play an important insurance function in so far as they guarantee the people's livelihood in emergencies. They 'provide the rural poor with partial protection in times of unusual economic stress. For landless people, they may be the only non-human asset at their disposal' (Dasgupta and Mäler, 1991: 19). By allowing other members in a situation of distress to make use of the resource (which is then used only for that purpose), every member of the community ensures himself against complete destitution, it being understood that use rights are temporary and may be opposed once the cause of distress has disappeared. It is interesting to note that, in most instances, the CPR performing that function is of very low economic value, so that a profitmaximizer would judge its exploitation non-profitable in normal circumstances.

Lastly, the point is often made that CPR overexploitation may not necessarily result from an incentive structure which drives people to behave in a socially irrational way. It may also be caused by the absence of insurance markets. This is particularly evident in the case of herders who tend to maintain flocks of considerable size but relatively poor quality as a way of hedging against the risk of animal loss. As pointed out by Dasgupta and Mäler, in Sub-Saharan Africa, 'herds are larger than they would be were capital and insurance markets open to the rural poor. This imposes an additional strain on grazing lands, most especially during periods of drought' (Dasgupta and Mäler, 1993: 6).

Credit-market imperfections

An advantage of village-level CPRs which is sometimes pinpointed by anthropologists is their role as an informal credit source. Thus, for example, in the case of the Yoruba community studied by Lloyd (1962), we are told that people can use the forests as an asset to meet community needs: oil palm is then harvested communally and used towards some collective purpose agreed upon by the community (Bruce and Fortmann, 1989: 9). Or, in an interesting analysis of privatization in a village of Karnataka carried out by Karanth (1992), we are told that:

The (village) garden served in the past as a source of toil money' for the two temples in the village, which was the proceeds of the sale of produce (mango, tamarind, jack and soap nuts) by auction. The temple priests now (at the end of a gradual privatisation process) grumble over the deprivation of oil money, which they have now to meet out of their own earnings in the temple or by the way of sale of produce. (Karanth, 1992: 1685)

Moreover, in particular circumstances also defined by the community, individuals may be allowed an extraordinary access to the CPR in order to use the income thus generated for an economic or social activity; or, else, the community itself exploits the CPR but reserves the product collected for helping one of its members to meet a particular expenditure such as that involved in a wedding or a funeral ceremony. We have personally encountered the same kind of arrangement in many Senegalese coastal villages where collective fishing expeditions are periodically organized by the community or a social group with a view to financing a communal project (such as the construction of a mosque or a school) or to supporting a particular member so as to enable him to meet a given expenditure.

In many cases, the CPR thus performs the role of a sort of communal bank upon which the community or its members individually may draw in certain predetermined circumstances. To that extent, it appears as a substitute for non-existent or imperfect credit markets. As for the previous point, it must nevertheless be asked whether or in what sense common property is really superior to private property in performing that function. After all, it could be contended that, at least for those CPRs which are liable to be privatized at reasonable costs, the division of the CPR into small individually held patches might also enable community members to have a bank substitute available to them. Thus, in the same way as villagers raise pigs, goats, or sheep for the purpose of constituting an easy-to-mobilize and moderately divisible asset fund, they can grow or monitor trees on a private basis for the same purpose.

What is then the rationale of common ownership? There are two elements in the answer to that question. First, collectively held resources enable a community to meet collective needs at comparatively low transaction costs. In other words, the alternative of collecting private contributions from each individual would prove more costly, in many cases, than the solution that consists of organizing a collective harvesting operation where everyone can easily monitor others' actions. Second, equity considerations militate against privatizing village-level CPRs for the above purpose. As a matter of fact, inasmuch as it is bound to give rise to increased socioeconomic differentiation (if only because people differ in their individual abilities to manage the resource), privatization is problematic. This is all the more so as the needs to be fulfilled from the incomes generated from the resource have an essentially social character, since they usually serve to establish social identity and respectability. A community or social group may understandably be eager to allow all its members to incur a minimum amount of expenditure towards performing inportant social functions (ceremonies or rituals), or to prevent excessive competition from arising in the symbolic sphere of social life. And, for the same reason as that mentioned above (lower transaction costs), holding a kind of communal bank in the form of a CPR may well be the most effective way to achieve this objective (as compared to the alternative of organizing a system of transfers with all the attendant moral hazard problems).

8.4 Conclusion

When the common property is regulated, efficient use can be achieved through appropriate taxes and subsidies aimed at correcting all the existing externalities. Yet, depending on the level of centralization of the regulating agency, the informational requirement of such a solution will be more or less stringent. In particular, it is unlikely that a state agency will possess sufficient knowledge about the state of the resource, its flow of use, and the identity of its users to be able to manage it directly in an efficient manner. Even assuming that the characteristics of the resource and its users are perfectly known, there still is the problem that monitorability of the users' behaviour may be imperfect. As a consequence, to discourage rule-breaking, the State will have to impose heavy fines which may well give rise to corruption and more openly obstructive practices. For these reasons, decentralized regulation appears less problematic although the ability of user communities to effectively process the available information ought not to be overestimated. Moreover, even when regulation is decentralized, perfect monitoring is the exception rather than the rule and it is therefore to be expected that rule violations will always occur at equilibrium.

When considering the possibility of common property regulation, distributive effects should never be ignored. Several situations can actually arise in which agreement about resource management is difficult to reach. Thus, when users are heterogeneous in the sense that they have different endowments, a co-operative solution may be so detrimental to the interests of the least-skilled users that, given the difficulty of implementing compensatory transfers, they will strongly oppose it. Furthermore, if regulation implies that some users should be deprived of access to the resource, uncertainty about the identity of those to be excluded will entail resistance against reduction of the user group's size. This is all the more likely to happen if users are risk-averse, an expected behavioural characteristic of poor users facing tight subsistence constraints in a context of highly imperfect credit and insurance markets. Note in this respect that common property is de facto a method of pooling the users' risks and thereby serves the essential function of a substitute for missing insurance markets.

If regulation takes the form of a taxation scheme and the tax proceeds are siphoned off by an agency (like the State) located above the user groups, the latter will be worse off than under the unregulated regime and they will therefore exercise all their leverage to prevent such a management scheme from being implemented. It would then seem logical to remit these proceeds to the users in proportion to the amount of variable factors which they were applying in the initial situation. Nevertheless, owing to private information problems, an efficient allocation will not be achieved without hurting some agents: the efficient situation cannot be Pareto-ranked when compared with the unregulated situation.

Finally, in any discussion concerning the relative merits of various regimes of CPR ownership, the fact must be borne in mind that overexploitation of village-level natural resources is often tantamount to overemployment: stress on the CPR directly results from a lack of alternative employment opportunities. For this reason, as long as these alternative opportunities are not created in sufficient numbers and the State does not intervene to alleviate the predicament of the worst-affected users, private property or strongly regulated common property will appear less desirable than a regime where access rights and rules of use take explicitly into account the subsistence constraints of poor villagers.