9. Some concluding reflections on the privatization of common property resources

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In many discussions about the overexploitation of natural resources, the blame is often put on the presumed absence of a well-defined set of property rights. In this perspective, privatization appears as the logical prerequisite to an efficient use of these resources.

In the preceding chapters, we have attempted at a theoretical level to assess how far such a claim is justified. This was done by carrying out an in-depth economic analysis of three alternative property regimes: open access, private property, and common property. In the latter property regime, a distinction was made between the unregulated and the regulated common property depending on whether a political authority is able to design and enforce different constraining rules for the resource use by the members of a well-defined community.

It has been shown that the eve argument advanced by the champions of the privatization programme rests on the comparison between an idealized fully efficient private property system and the anarchical situation created by open access (or, to a lesser extent, an unregulated common property). What has been argued in those chapters is that such a comparison is not only unfair to many traditional property regimes, but also scientifically illegitimate if used as an argument in favour of private property over natural resources. What a private property regime really needs to be compared to is a situation of regulated common property. When this is done, a rather surprising result emerges. Indeed, if (1) information is perfect and (2) there are no transaction costs, regulated common property and private property are equivalent from the standpoint of the efficiency of resource use. In other words, a common property regime has no structural trait which makes it inherently inefficient. Both the above property regimes can therefore support a Pareto-optimal equilibrium.

In other words, the property right school is guilty of confusing property regimes in which a resource is free for the taking with other regimes where access to, and use of, the resources are subject to strong internal regulations. As has been rightly emphasized by all the authors adhering to what may be called the 'collective action' school, a sound discussion about the relative advantages and disadvantages of various modes of CPR management cannot take place as long as situations of no property (res nullius) or open access are not carefully distinguished from situations of common property (res communis) in which a joint ownership unit exists and rules of restrained access to CPR are implemented.' Note that what often appears to the outside observer to be open access may really involve implicit co-operation by individual users according to a series of rules.

In a second step, the possible sources of inefficiency of a privatization programme has been analysed by identifying the conditions under which the establishment of private property would automatically constitute an efficiency-increasing move compared with a regime of unregulated common property. More specifically, property rights have to be well defined, all markets in the economy must exist and, moreover, be perfect and competitive, and there are no costs entailed in the enforcement of private property rights. In the real world, however, none of these conditions is likely to be satisfied and, therefore, it cannot be predicted a priori whether the establishment of private property over natural resources enhances efficiency or not.

Before privatizing common property resources, considerable attention should be paid to two advantages of traditional common property systems. First, these systems embody a variety of implicit entitlements that enable the resource users to make up for deficient markets in such crucial areas as employment, credit, insurance, and social security. Second, they also correspond to a complex set of rights and obligations embedded in long-term personal relationships that promote informal co-operation. Establishing private property rights is therefore tantamount to dissociating the economic use of the resource from all elements of personalized relationships and this, contrary to a widely held view based on the restrictive assumption of complete and perfect market, is liable to impair efficiency. As far as income distribution is concerned, what is worth stressing is that, historically, traditional users seldom get their rights of use recognized when privatization occurs. As a result, despite the increased efficiency private property is presumed to bring about, their welfare must fall. This holds true even if they now exploit the resource as wage-earners.

In a third step, attention has been shifted to the problems inherent in a common property management system. Without denying the relevance of the tragedy of the commons' story to explain degradation of natural resources in important circumstances, the fact must be reckoned that problems of resource management may well entail co-ordination or chicken game-like problems or a mixture of different payoff structures. In this new perspective, the focus of the analysis is no more on the irresistible tendency of individuals to overexploit the commons, as in the simple one-short PD game, but on human encounters involving problems of trust, leadership, co ordination, group identity, and homogeneity. The role of moral norms in backing trust, creating an aversion for freeriding on others' efforts, and linking all individuals together in a kind of generalized assurance game needs to be underlined. These beneficial effects of moral norms are more likely to take place within the framework of small group settings. This advantage of small groups is compounded by the fact that interactions among resource users are continuous and that their actions are easily observed and memorized. It is in fact in large groups that moral norms are most necessary since there is no internal mechanism to induce and sustain collective action in an anonymous environment. Unfortunately, this is where they are the most difficult to establish.

Recent findings from experimental social psychology point to a more optimistic conclusion even regarding large groups. This is because communication among actors and the possibility of promise-making induced by it tend to generate emotions which deter people from exploiting others. It is as though the feelings of some kind of proximity thus created, even for a limited period of time, would carry with them a sense of fairness which permeates their actions. To put it in another way, communication, when it can take place, may make people change their minds, thereby modifying the structure of their preferences and the payoff matrix of the game that is being played.

There is apparently an insurmountable limit to the questions that game theory can answer and it is related to the aforementioned problem of trust. Ultimately, indeed, co operation may not emerge in a group whether large or small, if enough trust does not prevail among a sufficient number of people. There must exist a sufficient proportion of people who have both an inclination towards co-operation and optimistic expectations regarding others' willingness to join the collective action. Given these initial conditions for co-operation, it is difficult to adhere (completely) to the evolutionary doctrine according to which co-operation may emerge spontaneously from the mutual interactions of the people.

We have clearly reached a point where the assistance of historical knowledge is absolutely needed. Why is it that a reasonable amount of trust exists in this particular group while complete distrust is the rule in another one? Why is it that a large number of people have a predisposition towards co-operation in this particular society or community while inveterate opportunists dominate in another one, making collective actions well-nigh impossible there? These are the kinds of questions which can be highlighted only by inquiring into the specific history of concrete societies, which often implies that the role of cultural and political factors is explicitly brought into the picture. Indeed, our analysis points to the importance of these cultural beliefs which capture individuals' expectations with respect to actions that will be taken by others in various situations involving the production of public goods.

In a fourth step, the possibility of making up for deficient spontaneous (decentralized) cooperation by resorting to purposeful regulation of common property has retained our attention. The use of 'selective incentives', such as taxes, may in principle solve all the externality problems generated by common ownership. Upon second look, however, there are a number of serious difficulties associated with this solution.

In particular, besides the well-known issue of the acceptability of a regulation scheme and the required enforcing authority, there are the problems of private information and imperfect monitorability. These problems are difficult to overcome, especially so if resource users are heterogeneous. Nevertheless, what needs to be emphasized is that, once they are established, regulatory schemes may well be less vulnerable to mistakes and small deviations than decentralized solutions. This is essentially because they provide a stable framework of unambiguous incentives that helps to structure expectations and to direct actions towards a welldefined goal.

In view of the foregoing considerations, none of the property regimes appears intrinsically efficient and, whether or not privatization of natural resources is advisable on the grounds of pure economic efficiency depends crucially on the specific situation considered. In many situations where regulated common property is criticized for being inefficient, private property would indeed pose similar problems. For instance, in those cases where agents are not fully aware of the ecological processes at work, or where protection of the resource against intruders cannot be guaranteed, or where the poverty of the agents drives them to overexploit their resources, state intervention is in fact needed to support common property, and it would also be needed if the resource were privatized. In other words, in those cases where common property is patently inefficient, the cause of that inefficiency should be thoroughly investigated before formulating any policy recommendation. Also, the kind of state intervention and the degree of decentralization advisable are matters that deserve careful scrutiny and, before opting for particular formulae, the glaring failures of state appropriation of village commons should be borne in mind.

An important issue which is bypassed in our analysis is that of technical progress. It is often alleged that the main gain to be expected from the privatization of natural resources consists of the increasing rate at which innovations ('technical progress') are produced and adopted. It is presumed that the economic inducements to innovate are much more powerful under private property than under common property. Unfortunately, on this particular issue, so little is known that it is almost impossible to give a balanced account of the different arguments in support of or against a particular property regime. In general, private property appears as much more responsive to innovation than common property. For instance, in his remarkable analysis of English enclosures, Allen (1992) concludes that: the diffusion of new techniques bears out the fundamentalist claim that enclosure led to agricultural improvement.... the open field villages were far less innovative than the enclosed. It is a far cry from that conclusion, however, to establishing that the enclosure movement made a substantial contribution to productivity growth in early modern England. Crop yields and labour productivity (not crop rotations) were the two critical factors of advance. Both about doubled between the middle ages and the nineteenth century. Enclosure, however, made only a minor contribution to these increases. (Allen, 1992: 15)

In more recent experiences such as the green revolution in Asia and Latin America, it is also patent that public agencies have played a major role in both the production and the diffusion of agricultural innovations (see, e.g., Hayami and Ruttan, 1971).

At a theoretical level, the innovative superiority of private property is difficult to assess. First, free competition is of course important in the adoption of innovations, since one is forced to keep up with competitors. Yet this argument applies to common property as well as to private property. Second, it might be argued that the private owner who experiments and innovates is alone responsible for his own acts: does he not concentrate all the gains of innovation? What must be said however is that he also bears all the risks attendant on his own experiments. In a common property, the risks as well as the gains of a localized experimentation can be spread over the whole community of users. Therefore, under common property, innovative behaviour should tend to be less risk-averse than that under private property. (Notice incidentally that this is distinct from the social security function of traditional rights of access: people are more induced to incur risks in their activities when they have the assurance of such rights.) Third, under competitive private property, many people experiment with different things, while under common property, the ideas are screened by a political authority or by a collective decision-making process. This of course tends to reduce the diversity of new ideas and innovations but, at the same time, where the adoption of the innovation requires much co-ordination (e.g. in the case of anti-erosive barriers, or for weed-control in agricultural activities), a common property of sufficient size may prove more adequate. Fourth, if, as has been argued, privatization tends to increase socio-economic differentiation and to exclude part of the former users from access to the resource, it may well be that common property, by enabling more people to ensure basic subsistence and to participate in economic decision-making, also allows more ideas and innovations to be produced and diffused. Fifth, as is well known in public good literature, for many innovations, the externalities involved are such that only the State is able to carry them out at a socially efficient level.

As can be seen, at a theoretical level, no decisive arguments can be found in support of a particular property regime. More scientific thinking is obviously required to develop and refine the different arguments that we have merely sketched above regarding the impact of a particular property regime on the nature and forms of innovative activities, and regarding the role of the State. Furthermore, a thorough analysis of different historical experiences is called upon in order to assess more carefully the relevance and relative importance of those arguments as well as to uncover new influencing factors that a purely conceptual approach may have missed.