12.2 The problem of economic incentives

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The role of external financial assistance

We have already strongly emphasized that, for corporate management of CPRs to be effective, an essential prerequisite is that resource users correctly perceive the potential benefits of collective action, which requires that they are well informed not only about the state of the resource but also about the possible impact of use behaviour on its stock (see above, Chapter 10). When this is not the case—bear in mind that deforestation or overexploitation of fish stocks by local users can be a slow and largely unnoticed process with the result that realization of the damage done may come too late—ignorance and not material incentives is the real culprit for degradation of the resource.

As hinted at in Part I, another important reason which may account for collective action failure irrespective of any free rider problem is high discount rates of future incomes by people subject to the pressure of survival constraints or other needs. (Remember that this argument is valid only if markets for credit and for use rights over the resource are highly imperfect or absent.) A clear illustration of this phenomenon is provided in Jodha's study of India's dry regions. As a matter of fact, the critical importance of CPR resources for the poor is reflected in the fact that, since these resources were privatized, they have been exploited with increased intensity compared to the pre-privatization period. More specifically, CPRs in these areas typically consist of submarginal lands that can be sustained only under low-intensity uses (e.g. natural vegetation as against annual cropping). However, in most cases, these submarginal or fragile lands have been shifted to crops following privatization with the result that not only their sustainability is jeopardized but also their ecological function in the total dryland system is undermined (Jodha, 1992: 62-3).

The observation is often made that rural inhabitants need special economic incentives to protect the environment. These incentives must be designed in such a way as to compensate resource users for temporary losses of income by providing them new sources of regular employment and income. The central role of economic incentives has been especially stressed in the literature dealing with community forest management. Thus, for instance, in her study of the Honduran resin tappers, Stanley has emphasized that 'income generation from the forests serves as a crucial incentive to mobilise community protection of the environment' (Stanley, 1991: 768). With re specs to reafforestation programmes in Haiti, Murray noted in the same vein that 'ecological protection and restoration will occur only as secondary effects to activities which generate income' (Murray, 1986: 200, cited from Stanley, 1991: 769).

Precisely the same theme recurs throughout a World Bank report on the role of social forestry in sustainable development. Here, the authors repeatedly argue for a comprehensive approach that integrates conservation and production objectives: people seldom accept environmental or conservation measures that are not accompanied by income-maintaining or enhancing strategies. In the words of the authors, 'earning income is one of the stronger incentives in eliciting widespread local participation in social forestry activity', as attested by project experiences in as diverse countries as Haiti, India, Indonesia, Kenya, the Philippines, the Republic of Korea, and many others (Gregersen et al., 1989: 142; see also Cernea, 1989: 30; World Bank, 1992: 141-2; Freudenberger and Mathieu, 1993: 20; Utting, 1994: 240-3). The approach used in an Indonesian programme is particularly interesting: it provides hill farmers with grants to compensate them for the loss of production during the initial improvement activities of soil conservation, tree-planting, and fodder establishment. In this way, we are told, 'family incomes are not reduced during the crucial period of introducing changes in land use'. Embodied in this practice is 'the judgment that the initial grants paid to the farmers are not subsidies, but rather payments for the offsite or downstream benefits that will arise as a consequence of the improvement work on upland farms' (Gregersen et al., 1989: 27-8).

In West Bengal, to take another example, there has been an interesting experience with group-farm forestry schemes targeted on landless people. Under such schemes, marginal public land is leased on a long-term basis by the government to clusters of landless people with a view to enabling them to grow trees. If the ownership of the trees and the responsibility for their maintenance as well as for the use of the products are vested in the individual leaseholders, collective action is expected to take place for the planting and the protection (such as taking turns in watching activities) of the trees. Now, and this is what interests us here, since the target group is made of landless who are highly dependent on the immediate income from their labour for their daily subsistence, the scheme has provided for labour payments to help meet consumption requirements of the families during the early stages of the plantation (Cernea, 1989: 57). Furthermore:

The area allotted and the number of trees to be planted guarantee enough wood from lops, tops, dead trees, and branches to meet a substantial part of a family's domestic requirements. The stem volume is then available for sale, and the total output ensures participant interest. The group strategy thus not only maximises land use for forestry but also provides the users with fuel or construction materials, as well as with cash income. These plantations generated good revenues which some families invested in purchasing land, planting potatoes, and other such gains. Overall, some 20,000 ha. have been successfully planted under group farm forestry arrangements in West Bengal during the last six-seven years. (Cernea, 1989: 57-8).

Success of such group-farm forestry schemes is testified by the experience of a programme implemented around Nagina village (in Arabari forest range). There, indeed, participant families which are mainly landless scheduled caste and aborigine families which have traditionally drawn their livelihood from forest and farm labour, were granted ownership rights over low-quality land (known as pasta land) unsuitable for agricultural production. The aim of the farm forestry programme (started in 1981) was to motivate clusters of farm families to plant trees on a contiguous plant of 20 ha. or more land in the laterite areas where these pasta lands are located. The Forest Department provided free seedlings, and one dose each of fertilizer and pesticides. Moreover, in the initial years, it also offered incentives in the form of small grants of cash money for each surviving plant at the end of the first and second years (with a higher rate for plants remaining after two years). However, 'digging of pits, planting, fertiliser application, replacement of dead trees, etc. were the responsibility of participating families and no remuneration was paid for these tasks' (Shah, 1988: 4-5).

More important subsidies were not required to make the programme work because the real cost to the participant families of establishing the plantation was very low: the land planted with trees had no alternative use; pits were dug in summer months when farmwork was difficult to come by; and protection did not pose much of a problem. In better-endowed areas like in the alluvial tracts of West Bengal, 'farm forestry did not—and is unlikely to make as much progress as in the laterite districts, if only because land as well as labour have considerable opportunity costs there' (Shah, 1988: 6).

The reforestation experiment known as the Arabari experiment is one of the most successful stories in village-based CPR management. It started as early as in 1970 in the Midnapore district (West Bengal) and, in many ways, it can be considered as a pioneer attempt which inspired many subsequent reafforestation projects. The idea was to stop forest depletion 'by providing villagers with an amount of employment in forest protection-cum-replanting work which in monetary terms would be equivalent to what villagers earned by sale of stolen forest products' (Cernea, 1989: 58-9). Several features of this project are worth emphasizing, most of which point to the crucial importance of establishing the right incentives and making sure that the people concerned have well understood that they are to be the primary beneficiaries of the project. First, not only has employment been created in the planting of trees but employment creation has been spread and phased over the year so as to provide regular incomes to the inhabitants of the eleven villages involved in the experiment. Second, supply of fuelwood to them has been ensured at a nominal, low price. Third, a revenue-sharing arrangement has been put into use under which the Forest Department pays the villagers 25 per cent of the selling price of the mature trees in cash. Fourth, the responsibility for the protection of plantations has been entrusted to villagers with minimum official interference.' Fifth, an intensive communication effort has been made to explain the incentives and the experiment rationale to the villagers. Sixth, institutional arrangements have been provided to the effect that rotating representatives are elected to monitor work attendance and to collect/distribute payments. According to Cernea, the results achieved in this set-up are impressive: the villagers enforced total protection of the forest, primarily by desisting from making illegal cuttings, while their employment in replanting generated revenue for them and for project as well. The self-imposed and self-enforced reduction in firewood cutting and the watching and patrolling by villagers acted as a 'social fencing' around the state forest. The tensions between the villagers and the Forest Department eased. The upshot of this successful experiment was that the once degraded forests were rehabilitated spectacularly within 3-; years and hay-e continued to grow since. Moreover, other villages joined and the experiment soon expanded from 11 to 16 villages, covering 1506 ha. by 1978; some of the newly included blank areas were planted with cashew nuts, which in a few years provided a cash crop sold on the open market, with part of the sale proceeds going to the villagers.

Recent (1989) assessment confirmed not only the sustainability of the initial Arabari model but also its rapid spread in the mid and late 1980s to many more areas. While the experiment started without formal group formation in each of the small villages involved, the subsequent follow up took on stronger characteristics of group creation, with the establishment of Village Protection Committees . . . some 7()()-800 such groups were formed in the southwest zone of West Bengal, protecting over 70,000 ha. of degraded/replanted forests: . . . The will to do so developed as these groups believed in the assurance of sustained benefits. (Cernea, 1989: 60-1)

To shift attention to another continent, mention may be made of the USAID-funded project of management of the Guesselbodi forest reserve, Niger. This 5,000ha. forest was extremely degraded and overgrazed when the project began there in 1981. A management plan was put in place in September 1983 which combines promotion of ecological objectives with generation of economic benefits for the local population through marketing of fuelwood in Niamey (Lawry, 1989a: 6-7). When, on the contrary, there is no provisioning of tangible, compensatory benefits, users remain the agents of vicious cumulative processes of resource degradation. Thus, how tempting it is to deplete nearby forests rather than cultivate trees for fuelwood, animal fodder, anti-erosion, and other purposes? In Malawi, for example, the returns to labour invested in gathering fuelwood have been estimated to be fifteen times higher than the returns to labour invested in growing fuelwood and over five times higher than to labour invested in growing trees for poles (Cernea, 1989: 51).

In India, when special economic incentives are not provided, the rural poor tend to adopt measures manifesting a high degree of desperation: premature harvesting of CPR products (such as the catching of immature fish), increased frequency and unseasonal lopping of trees, removal of plant/bush roots, overcrowding of CPR areas, and the use of hitherto unusable or inferior products that are possibly health-damaging (Jodha, 1992: 46-8). In Azad Kashmir (Pakistan), under the impact of several factors analysed in the previous chapter, customary rules governing the use of local forest resources have become more and more liberally interpreted and broadened with disastrous ecological consequences:

Within a radius of several miles from many human settlements, virtually all trees were debranched . . . In many locations only the top 10 to 20 per cent of the crown of trees remains. Outright topping has also occurred and prematurely killed the trees. In the Chir pine areas, long thin vertical slices of the bole of the tree are removed at stump level for home lighting. Roadside trees are similarly molested. On community open access practices in the absence of community management have fully consumed the tree cover. (Cernea, 1989: 11).

It is sometimes believed that, to be effective, subsidies to users confronted by subsistence constraints in conditions of highly imperfect credit markets should be sufficient to cover not only the direct cost entailed by the conservation strategy (tree-planting, for instance) but also the opportunity costs of the production factors (mostly land and labour) used towards that purpose. Subsidies need not be so large, however. As can be argued on the basis of a dynamic analysis of the conservation problem proposed by Pagiola ( 1993) and summarized in Chapter I (sect. 4), what poor CPR users require is an assistance that allows them to overcome their inability to bear the cost of profitable conservation investments (whether under the form of temporary restraint in using the resource or of investment in resource-preserving infrastructure). In other words, this category of users is caught in a vicious circle because it must meet its subsistence needs in every period in circumstances where the existing level of the available resource is too low to yield a sufficient flow of extractable produce without being gradually but inexorably degraded. The external help must therefore be calculated in such a way as to enable them to build up the resource to a level compatible with a conservation strategy in the long run (that is, the steady-state level).

Clearly, the amount of assistance needed will depend on the biophysical characteristics of the resource and, more particularly, on its level of productivity at the beginning of the incentive scheme. It is a priori possible that users require only a small trigger in order to move from a shutdown to a conservation path. At the other extreme, as pointed out in Chapter 1, the possibility also exists that biophysical conditions are initially so bad and/or conservation practices so ineffective that no conservation strategy is going to be profitable in the long run: production will never be sustainable, whatever the conservation efforts undertaken. In this case, there is no other solution than creating alternative income-earning opportunities for the rural poor and, if the natural resources on which their subsistence presently depends have a value for the society, the sooner these new opportunities are created, the better it is (since the resources may be completely degraded if they come too late). Yet, if conservation is a feasible strategy, it bears emphasis that a policy of assistance to poor CPR users is likely to be all the more effective as they have in general great incentives to seek to conserve their resource base precisely because they have limited alternative income sources (see Chapter 1).

Now, to the extent that villagers have high alternative income opportunities, their incentive to follow a shut-down path of resource exploitation is great and the amount of the incentives required to make them shift to a conservation path may be much higher than in the case of poor users. In this respect, bear in mind the above-noted difference between the degree of success of farm forestry schemes between laterite and better-endowed districts in northern India. In Chapter 11, we made the point that there is no reason to feel concerned about people degrading local natural resources when they have available to them better income opportunities and when the resources do not yield external effects. If the latter condition is not satisfied, concern is of course fully justified and an active policy may have to be pursued with a view to inducing resource users to adopt a conservation strategy. This will require the amount of the subsidy to be equal to the difference between the best alternative income and the income that can be derived from the resource when it is conserved in the long run. Or, the State could buy the resource from its customary owners, an alternative that is likely to be less costly than the above policy which implies continuous subsidizing. In the same logic, if the objective is improved management of resources which have important ecological functions yet are of low commercial value, and if this objective conflicts with use of resources which are of high commercial value but generate negative externalities (for instance, when wildlife and forest resources compete with land for agricultural and pastoral use), it is important that the subsidies granted cover the opportunity costs of land and labour (Lawry, 1989b: 17-18).

A last remark concerns the attitude of the rural rich and their consequences for the poor's access to customary CPRs. The former people tend to alleviate the problems of the latter inasmuch as they stop using CPR products which they consider as inferior goods. In the dry tropical parts of India, for example, rich villagers resort to their own supplies of biomass or substitute non-renewable and/or external products for renewable CPR products (e.g. stone fencing for thorn fencing, rubber tyres for wooden tyres for bullock carts, iron tools for locally made wooden ones). Unfortunately, this is only one side of the coin. As a matter of fact, the behaviour of the rich may also worsen the predicament of the poor: this clearly happens when they try to grab CPR lands, to prevent others from using their private land during off-season, or to enrich their own soil by mining silt and topsoil from CPR lands and bring it on private fields. In addition, their attitude is indirectly detrimental to the poor's interests if, as an elite, they show indifference to CPR degradation and avoid committing their authority and mobilization ability to CPR rehabilitation (Jodha, 1992: 46-7). Similar evidence exists for other areas, such as the coastal Niayes of Senegal, where 'the uplands once used as reserves for field crop cultivation as well as pastures for village livestock have been sold by the village elders to well-off "Sunday farmers" who wall off the plots and plant fruit orchards and gardens' (Freudenberger and Mathieu, 1993: 16).

To summarize, even assuming that they are aware of the ongoing processes of resource depletion and of the extent of damage done, rural dwellers are likely to be reluctant to participate in local conservation efforts if they do not receive external assistance to tide over the critical period during which they must build up their resource to the steady-state level where it can be optimally maintained (if this level actually exists). This conclusion makes sense of Jodha's finding that higher productivity and yields of CPRs play an important role in inducing better CPR management or, conversely, people show little interest in protecting local CPRs if incomes derivable from them are negligible. It also tallies with our finding in Chapter 10 that rural communities tend to resist CPR management if depletion is so advanced that there is an acute shortage of CPR produce needed for bare survival.

Such findings suggest the possibility of two distinct situations, one virtuous and the other vicious. The first situation corresponds to a steady-state equilibrium in which a resource stock is constant in the long run while it produces every year the highest income that users can hope for. The second situation is unstable since the resource is inexorably degraded under the pressure of continuous extraction efforts. Note that these efforts may come not only from poor people facing hard subsistence constraints but also from rich people who have available to them attractive alternative income opportunities. Since conservation is not ensured, the productivity of the resource is reduced every year and the shut-down point is gradually approached. Regarding poor CPR users, Jodha is therefore right in pointing out that an external intervention is needed in order to restore or augment the productivity of village-level natural resources when these are seriously degraded (e.g. through new technologies susceptible to enhancing regeneration, increasing the flow of biomass, and improving the physical status of CPRs) so that these users can be motivated again to use them in a sustainable manner (Jodha, 1992: 53, 68).

An intriguing question

One trivial implication which can be drawn from the above analysis is that villagers may well let their CPRs degrade to such a point that it is no more possible to conserve them in the long run without the support of external assistance. It is noteworthy that this observation is hardly compatible with the 'induced institutional innovation' hypothesis or with the central thesis defended by Wade in his book Village Republics (see also our discussion of McKean's study of CPR management in Japanese villages in Chapter 10).

In this book, Wade indeed contends that 'villagers will deliberately concert their actions only to achieve intensely felt needs which could not be met by individual responses' (Wade, 1988a: 211). On the basis of the evidence from his sample of irrigated and dry villages in South India, he draws the conclusion that deliberately concerted action 'arises only when the net material benefits to be provided to all or most cultivators are high—when without it all or most cultivators would face continual collision and substantial risk of crop loss'. More precisely, 'where risks associated with irrigation and common grazing are high cultivators will straightforwardly come together to follow corporate arrangements designed to reduce those risks' (ibid. 186- 8). Thus, in villages where the risks of both grazing and irrigation are high—that is, in villages fed from near the tail-end of an irrigation channel more than several miles long, with fine, water-retentive soils one tends to find a corporate response in the form of local organizations geared towards ensuring the reliability and adequacy of water supply. In dry villages with fine, water-retentive soils, there are high grazing risks, which tend to generate only an intermediate level of corporate organization. Finally, in top-end irrigated villages, the risks of both irrigation and grazing are relatively low, and the level of corporate organization tends to be less than that of many dry villages (ibid. 185; see also Wade, 1986a, 1986b, 1987).

The basic idea of Wade is that it is prima-facie silly to think, as in the conventional picture of Hardin's tragedy of the commons, that people facing congestion or depletion of their CPRs will do nothing to alleviate it for themselves (Wade, 1988a: 208). On the other hand, Wade can certainly not be accused of ignoring or even downplaying moral hazard problems commonly associated with collective action. As he puts it, 'the concerting of action is itself something in need of explanation even once the incentives or "needs of capital" have been identified'. In other words, it is not because all or most villagers could benefit from joint action that such action will necessarily be forthcoming (ibid. 188). This being said, and even though precise propositions to that effect arc nowhere to be found, Wade's work on irrigation and grazing groups in South India leaves one with the strong impression that moral hazard and other collective organization problems get eventually solved whenever corporate forms of action are badly needed to solve survival problems.'

This last kind of statement is encountered in other works as well. Thus, for instance, Lawry points out that "economic incentives are often insufficient to stimulate individuals to participate in or sanction local-level resource management' and this tends to happen when the resource is of minor importance in relation to other sources of income, when substitutes exist, etc. (Lawry, 1989b: 6). Not surprisingly, Lawry reaches the same conclusion as Wade that 'collective action is more likely to result where the common resource is critical to local incomes and is scarce', and when its privatization appears to be unfeasible or too costly (ibid. 7-9).

Since there is so much contradictory evidence, an interesting question is why in some cases (such as those studied by Wade) common property management is developed while in some others privatization or degradation occurs. What is worth emphasizing is that Wade pays a good deal of attention to the case of (surface) irrigation water, a CPR the regulation of which does not require present-day sacrifices to secure future incomes. Indeed, irrigation typically raises an allocation, not a conservation problem (that is, a problem in which absence of restraint harms the interests of other users but not one's own and others' interests in the future) and, as argued in Chapter 10, rural communities are much more successful in solving allocation than conservation problems. Equally important is another feature of the case, namely that there is no technically feasible alternative to co-ordination, at least in the short or medium run. Furthermore, the canal irrigation system has well-defined boundaries, is highly visible and the social group of users has clear spatial boundaries, is relatively small in size, and resides in the middle of the resources it exploits. Finally, most members share the same perception of risk of congestion and wish to use the resource in basically the same way (Wade, 1988a: 189).

It is true that Wade also bases his conclusion on his observations regarding regulation of common village pastures, a CPR which raises both conservation and allocation problems. This is a more intriguing finding since, in other countries like Rwanda, pressure on land has led to the opposite outcome: full privatization of communal pastures. A plausible explanation of this divergence is to do with factors that will draw our attention at a later stage in this chapter. Just note here that the absolute need to act collectively for regulating irrigation in South India may have yielded positive external effects for other sectors where joint use is only one among several possibilities: once a community has acquired some experience of co-operation in one sector, it is easier for her to develop it in other sectors as well. This argument cannot be applied to Rwanda which has very different topographical conditions and opportunities for joint action: farms tend to be highly scattered over hilly areas and farmers are consequently used to rely largely on their own efforts. The same actually holds true for many rural settings in other parts of the world, too: in Central America, for instance, highly dispersed settlement patterns exist and there is little social cohesion outside of the family unit (Utting, 1994: 256).

It is worth noting that Wade has actually reckoned quite explicitly with the possibility that villagers confronting crisis conditions tend to indulge in opportunistic behaviour: they can show no concern for their future incomes and ignore the effects of their own behaviour on their social reputation in the local community. According to him, indeed, the main exception to the argument that rational individuals can (subject to some conditions) voluntarily comply with rules of restrained access occurs when some people in the community become desperate. As a matter of fact, 'they may then contemplate short-run strategies which they would not contemplate in normal times' and transform themselves into cheaters (Wade, 1988a: 204). Wade has come across such a case in his study of Kottapalle village. Yet no disruption took place because the organization was already firmly established and could adapt itself to the crisis situation by tightening the rules and increasing the fines to a significant extent. What needs to be underlined, however, is that the crisis was essentially of a temporary nature since it was caused by a shortage of surface water resulting from erratic climatic factors.

Our central point is precisely that, under the continuous (and not passing) pressure of crisis conditions, collective action may be prevented from arising or from being sustained when anarchistic solutions are available and sacrifices have to be incurred today in order to preserve future incomes.