3. The property rights school solution: the privatization programme

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3.1 The position of the property rights school
3.2 The efficiency of the privatization programme
3.3 The distributive impact of privatization

3.1 The position of the property rights school

We have so far shown that open access and unregulated CPRs were likely to be exploited in an inefficient way. In other words, if a costless system of transfers could be established, a pattern of resource exploitation can be found which makes everyone strictly better off. The core problem is that open access and unregulated common property do not give individuals the proper incentives to act in a socially efficient way. In other words, such property systems are likely to generate externalities.

The property rights school argues that private property is the most appropriate way to make the individuals internalize the externalities. In the words of Demsetz, 'A primary function of property rights is that of guiding incentives to achieve a greater internalization of externalities' (Demsetz, 1967: 348). The incentive effect of a private property regime has long been recognized, as is attested by the following excerpt from Lloyd: 'The common reasons for the establishment of private property in land are deduced from the necessity of offering to individuals sufficient motives for cultivating the ground, and of preventing the wasteful destruction of the immature products of the Barth' (Lloyd, 1833: 14). Or, in the emphatic style adopted by Garett Hardin, 'An alternative to the commons need not be perfectly just to be preferable. With real estate and other material goods, the alternative we have chosen is the institution of private property coupled with legal inheritance.... we are not convinced, at the moment, that anyone has invented a better system. The alternative of the commons is too horrifying to contemplate. Injustice is preferable to total win' (Hardin, 1967: 27-8).

The ultimate superiority of private property rights has been expressed by R. Posner as follows:

The proper incentives [for economic efficiency] are created by the parceling out among the members of society of mutually exclusive rights to the exclusive use of particular resources. If every piece of land is owned by someone, in the sense that there is always an individual who can exclude all others from access to any given area, then individuals will endeavor by cultivation or other improvements to maximize the value of land.... The foregoing discussion suggests three criteria of an efficient system of property rights. The first is universality. Ideally, all resources should be owned or ownable by someone, except resources so plentiful that everybody can consume as much of them as he wants without reducing consumption by everyone else.... The second criterion is exclusivity.... The third criterion of an efficient system of property rights is transferability. If a property right cannot be transferred, there is no way of shifting a resource from a less productive to a more productive use through voluntary exchange. (Posner, 1977: 10-13 as quoted in Bromley, 1989a: 13)

In short, private property rights should be established. The property rights school does not however limit itself to bringing out the static gains in efficiency which may be engendered by private property. It also makes the contention that the institution of private property will spontaneously emerge in reality whenever a cost-benefit comparison makes it appear as more desirable than any other system.

If the main allocative function of property rights is the internalization of beneficial and harmful effects, then the emergence of property rights can be understood best by the association with the emergence of new or different beneficial or harmful effects.

Changes in knowledge result in changes in production functions, market values, and aspirations. New techniques, new ways of doing the same thing, and doing new things—all invoke harmful and beneficial effects to which society has not been accustomed. It is my thesis in this part of the paper that the emergence of new property rights takes place in response to the desires of interacting persons for adjustment to new benefit-cost possibilities.

The thesis can be restated in a slightly different fashion: property rights develop to internalise externalities when the gains of internalisation become larger that the cost of internalisation. Increased internalisation, in the main, results from changes in economic values, changes which stem from the development of new technology and the opening of new markets, changes to which old property rights are poorly attuned. (Demsetz, 1967: 350)

In short, efficiency considerations dominate the property rights school arguments. In this respect, private property rights are alleged to be superior. Furthermore, it is claimed that changes in property rights systematically achieve greater efficiency.

3.2 The efficiency of the privatization programme

Let us assume that private property rights can be defined and enforced costlessly over a resource in an open access or unregulated common property regime. Then it is standard economic wisdom that, under the new definition of property rights and perfect markets, a competitive equilibrium is efficient. This proposition rests upon four central assumptions: (a) enforcement costs are nil, (b) property rights are well defined, (c) markets are competitive, and, (d) markets are perfect, each of which we shall now examine in detail.

Enforcement costs are nil

First, in most instances, defining and enforcing private property rights entail the physical costs of defining a 'territory'. For some resources, property rights simply cannot be established because the costs involved are prohibitive (or, even, infinite): migratory fish species or clean air provide well-known examples. For instance, in the case of lobster fishing territories in Maine, 'it would be very difficult or impossible to divide the entire coast into small territories owned by single individuals. If a person is going to fish year-round or even most of the year, he needs access to a large and diverse area. The costs of defending such a territory would be prohibitive' (Acheson, 1978: 61). However, some groups of fishermen were able to secure an exclusive access to some fishing territories where the topological conditions significantly lower the costs of defending them. Such a situation characterizes the 'islands that have been in the hands of one or more of the old-established families for generations' (Acheson, 1989: 367).

We are told that private property in land in the American Great Plains did not develop fully before the 1870s because the cost of fencing was too high, making it impossible to prevent livestock from crossing range boundaries. 'The introduction of barbed wire greatly reduced the cost of enclosing one's land. To the homesteader whose land was invaded by cowboys and their herds which trampled down crops, barbed wire defined the prairie farmer's private property.... In 1882, the Frying Pan Ranch, in the Panhandle, spent $39,000 erecting a four-wire fence around a pasture of 250,000 acres' (Anderson and Hill, 1977: 207-8). Among the Indians of the American south-western plains, property rights on hunting-grounds were absent: 'animals of the plain are primarily grazing species whose habit is to wander over wide tracts of land. The value of establishing boundaries to private hunting territories is thus reduced by the relatively high cost of preventing the animals from moving to adjacent parcels' (Demsetz, 1967: 353).

In general, the costs of enforcing private property rights are likely to be smaller when the resource is concentrated. For instance, in the tropical forests of East Kalimantan (Borneo), the great diversity of species of trees, of which only some are economically valuable, and the fact that they are largely dispersed throughout the forest prohibited their privatization. However, birds'-nests caves which are concentrated and therefore more easily watched and guarded, are 'often controlled as private property by individuals and families' (Jessup and Peluso, 1986: 510). 'In Tripolitania, for example, potentially lucrative almond trees are reported to have been forsaken for cattle raising owing to the "common ownership" of land. This can be explained by the fact that the costs of policing investment in a tree, perenially "attached" to the common land, is high, whereas cattle are driven home at night' (Cheung, 1970: 53).

Enforcement costs are also likely to be high where the new distribution of property rights tends to hurt the former users. In most historical cases, indeed, privatization initially took the form of expropriation and was achieved through violence. The Far West conquest and the expropriation of the native Indians in North America is an interesting example in this perspective. The genocide which accompanied this process has had such a traumatic impact on the North American society that its members felt the need to mythify these events by resorting to all cultural means, particularly cinematographic production, in some ritual of exorcism. The enclosure movement in the plains of North America and in England were also accomplished by force. In the latter case, 'early enclosures, especially those before the mid-sixteenth century, frequently involved the destruction of villages and the expulsion of their inhabitants as lords seized peasant land.... Before 1450 and 1525, about one-tenth of the villages in the midlands were destroyed' (Allen, 1982: 14). The current privatization process of the Amazonian forest in Brazil gives rise to many armed conflicts which will ultimately lead to the genocide of the native Indians. In India, the nationalization of forests led to violent reactions and, in some instances, to the complete destruction of the commons by dispossessed former users (for further details, see Chapter 11, sect. 1).

In other words, the costs of enforcing exclusive property rights partly depend on the way distribution of wealth is affected and also on the perceived legitimacy of the new legal system and authorities by the dispossessed former users. Violence is likely to be resorted to when perceived legitimacy is low. One might apparently argue that transfers can be made from the new owner to the former users to compensate for their loss, as if the latter were sell their informal right of use. We analyse this issue in detail at the end of this chapter. At this stage, let us note that, historically, such transfers seldom took place, and the rights of the former users were seldom recognized. As an additional example, in the case of English enclosures, we are told that, 'during the parliamentary enclosures less than seven per cent of enclosed land went to peasants holding a total of 25 acres of land or less. In the earlier enclosures, not regulated by parliamentary acts, the allotment was presumably even more disproportionate.... If a tenant was able to demonstrate to the satisfaction of a court that he had good title to land (if his family has worked it for time out of mind), his tenure was secure, although this didn't necessarily mean that he ended up "owning it". If he was unable to do this, he was at the mercy of the enclosing lord. For the most part, good title to the land was difficult to establish for a copyholder and insecurity was widespread where enclosures were extensive' (Cohen and Weitzman, 1975: 324; see also Allen, 1992).

In some cases, the appropriation is made by a minority of traditional users at the expense of the remaining ones. For instance, we are told by Karanth in his analysis of a village in Karnataka:

From the point of view of some elders in the village, such greed for land resulted in the poor maintenance of the village tank, garden, manure pit and what remained of the pastures. Those owning land around a pasture began to encroach it with a hope that sooner or later they would regularise the unauthorized occupation. Likewise the dry bed of the tank, the garden and the manure pit were also being encroached. Given the increased politicisation of village factions, there had been several signed and anonymous complaints of encroachment. Officials of the revenue department had made several visits to the village for a 'spot' inspection and after a customary meal in the houses of leading families reports were made to state that the complaints were not found to be true. The consequence was that the village garden, the extent of which was 1.13 acres has now been reduced to less than ().40 acres. Although the index of land states that there were several varieties of fruit-bearing trees, there are hardly any left now. ( Karanth, 1992: 1685)

Equally important to emphasize are the two following problems: (1) private information problems may make compensation of the former users infeasible, and (2) the private value attached by former users to their access to the resource (a plot of land, a hunting-ground or a fishing territory) may be very high and exceed by far its economic value on the market.' This is particularly evident when their ancestors have been buried on or near the land to be privatized and when magical beliefs or historical considerations impart a highly emotional value to the same (see Chapter 10 for more details). For instance, in SubSaharan Africa, we are told that 'Land was held communally by clan or lineage. A sacred trust, it was essentially in the holding of the ancestors. It was the only area from which rituals to the ancestors could be effectively performed and hence where one should be buried' (Caldwell and Caldwell, 1987: 422). One may also think of the symbolic role of the 'sacred islands' among aboriginal fishing and hunting communities such as the Bijagos in Guinea-Bissau. Commercial exploitation of these islands following assignment by the State of private landleases to business interests (for touristic development) or even temporary occupation by outsiders (migrant smallscale fishermen from Senegal) have aroused indignant feelings and violent reactions (in the form of poisoning of some intruders) among the Bijagos (personal field observation of Platteau).

The importance of this last point should not be underemphasized: indeed, many conflicts accompanying a privatization process develop because the new arrivals and the legal authorities did not recognize the symbolic value attached to the resource by the former users. For example, a recent CIDA (Canadian International Development Agency)-supported project of establishing seven 4,000-hectare highly mechanized wheat farms in Northern Tanzania is strongly opposed by the Barabaig herders. About 30,000 Barabaig live in that area and have for more than 100 years moved their livestock on a rotational basis around the territory. Five Barabaig elders, supported by Charles Lane, a British anthropologist of the IDS (Sussex), sent a letter to the Canadian authorities, in which they claimed that 40,000 hectares of land, some of their best grazing land, had been taken with inadequate compensation and without their consent. They also claimed that they had been personally beaten and robbed by farm employees, that their houses and possessions had been burned out, and their access to traditional water sources and pastures prohibited. 'Many of the graves of our elders have been ploughed up and are no longer recognizable', said the letter. 'These sacred sites are very important to us as places of worship. It is there that we make offerings and call on God's blessings through the medium of our ancestors' (as quoted by the Globe and Mail, 8 May 1989). Iffy 1987, already 57 Barabaig burial sites had been destroyed and others were either surrounded by cultivated fields or rendered inaccessible because of threats from new settlers or project staff.

Another example of the same discrepancy between the private and market values that can be attributed to a resource is given implicitly in the following judgment rendered in 1493 by an English Court condemning Henry Smith, who seized a domain traditionally used as cultivated land by eighty customary tenants in order to convert it into pastures for his sheep. The persons who were formerly occupied in the same cultivation . . . were compelled to depart tearfully against their will. Since then, they have remained idle and thus lead a miserable existence, and indeed they die wretched. What is more to be lamented is [that] the church of Stretton on that occasion fell into ruin and decay, so that the Christian congregation, which used to gather there to hear the divine offices, is no longer held there and the worship of God is almost at an end. In the church animals are sheltered from the storms of the air and brute animals feed among the tombs of Christian bodies in the churchyard. In all things the church and burial are profaned to the the example of others inclined to act in such a manner (Leaden, 1897: 432, emphasis added).

What the above analysis tends to show is that, due to the intervention of equity considerations, costs of enforcing private property may be much higher than usually thought. They might even be so high that we cannot be sure that establishing this new system of rights will actually reduce transaction costs (including litigation costs) as predicted by the property rights school. This is all the more true if allowance is made not only for transaction costs resulting from land-market imperfections, but also for those arising from labour-market imperfections. As a matter of fact, moral hazard problems on the labour-market (absenteeism, labour-shirking, input-pilfering, asset mismanagement, etc.) may increase owing to the resistance or vengefulness of dispossessed resource users (for a more elaborate analysis of these and related points, see Platteau, 1992).

Property rights are well defined

The second point we would like to draw attention to is the following: to be efficient, the privatization process must be perfect, in the sense that it has to eliminate all the externalities involved in exploitation of the resource. First, it must lead to 'the internalization of the good externality'. In his analysis of fur trade in Labrador, Demsetz notes that private property rights on land developed with the development of the commercial fur trade (Demsetz, 1967: 351-3). This is a typical illustration of the case where privatization is imperfect. Since exclusive property rights could not be enforced at a reasonable cost in the game itself, they were created around hunting-territories with the consequence that externalities were not all removed. The importance of remaining externalities obviously depended upon the mobility of the game and the size of the territories. Exclusive fishing rights in vrell-defined territories provide another well-known illustration. In many cases, the resource itself (migratory species of fish) can hardly be privatized so that exclusive rights bear upon the (fishing) area where the resource is living. The importance of the residual externality should not be underestimated.

Second, privatization must be complete: exclusive rights have to be defined on the whole resource. Otherwise, perverse effects arc bound to develop and to lead to a worsening of the situation. For example, Gilles and Jamtgaard report that 'the decline of the English commons may have resulted from the exclusion of animals from agricultural lands. In the English openfield system, animals grazed on the commons during the summer months and fed on stubble and hay during the rest of the year. As fields became privately owned, animals had to spend longer periods on the commons. The result was overgrazing' (Gilles and Jamtgaard, 1981: 138). Migration of workers from newly enclosed to unenclosed areas also contributed to the degradation of the commons system. 'The. . . effect was to be seen in the so far unenclosed towns and villages where some of the dispossessed tenants moved. The overcrowded squatter settlements set up on the border of these towns were a direct result of enclosures.

Chambers notes that Nottingham, by its decision not to enclose, left itself no choice but to grow within its ancient manorial boundaries, and before the end of the eighteenth century, there were complaints of severe overcrowding. 'By turning its face against enclosures, it had condemned itself to a period of unparalleled overcrowding and squalor' (Cohen and Weitzman, 1975: 326). In the Karnataki village analysed by Karanth, 'the consequences of privatization of CPRs in land was that there was a gradual depletion of village pasture. Farmers became increasingly dependent upon the forests for grazing, which in turn led to depletion of forest resources too' (Karanth, 1992: 1687).

Also worth stressing is the fact that reforming customary property right arrangements is likely to create serious uncertainties about the future use rights of former resource users. For instance, not infrequently, enforcement costs are either so high that the State is unable to establish the new property right arrangements, or of such a nature that the change can only be carried out at a slow pace, thus lengthening the transitory phase. This is bound to lead to conflicting claims over these ill-specified rights and there is no assurance that the newly emerging situation will be superior, in efficiency terms, to the previously obtained arrangement. In the worst case, a genuine open-access situation might arise as a result of the complete breakdown of traditional norms and codes of behaviour.

Third, privatization may create new externalities. For example, in his analysis of the green revolution in Gujarat (India), B. Bhatia (1992) demonstrates convincingly how the privatization of the irrigation system through the development of private tube-wells led to such an overexploitation of underground water that tube-well irrigation is doomed to come to an end in the coming decades. Note in passing that this is of course related to the fact that private property rights in underground water are too costly to define. To take another example, the privatization of forests in Scotland may cause 'the siltation of salmon streams caused by logging' (Hardin, 1977: 223); in semi-arid areas, it may induce users of firewood to overexploit a close substitute (young trees from adjacent bushes); in Belgium, it has actually fostered the extension of pine forests (a quick-maturing species) with the result that soils became increasingly acid and that biodiversity and game stock were drastically curtailed.

Markets are competitive

The third point we would like to make is closely related to the second. In many cases, such as when the resource can be detained by only one owner or when there are increasing returns to scale, the correct internalization of the externality implies the creation of a local monopoly, a classical cause of inefficiency.

In a static framework, an oligopolistic producer tends to exploit too little, and unregulated common property too much of the resource. Therefore, unregulated common property with respect to a resource for which the community considered is the only seller on the corresponding goods market may be the most efficient (Pareto optimal) pattern of resource management. Indeed, Comes et al. (1986) have shown that, when the n agents who exploit a resource collectively are the only sellers of that resource on the market, there exists an optimal number n* of these agents, with n* > 1, such that the non-co-operative pattern of resource exploitation (the 'tragedy of the commons') is Pareto-efficient.

There are actually many instances where privatization of the resource involves the creation of a monopoly. For example, we are told by Bromley that, in Switzerland, 'the several farmers who jointly own a summer pasture are able to share the cost of a single herder to move the animals around to water, and to select those areas for grazing where the vegetation is particularly lush. If the summer pastures were owned in severally, it might then be possible for one strategically located owner to prevent all others from gaining access to water—a potentially serious issue for the welfare of the group' (Bromley, 1989a: 16).

This is not a marginal example. As a matter of fact, the problem of access to water wells in many arid and semi-arid areas in the developing world is so critical that the consequences of replacement of communal by (monopolistic) private ownership for herders and other nomadic people cannot be underestimated.

Protection of underground water against overexploitation, of the Sahelian area against desertification, or of a lake against overfishing may therefore require the whole underground water, the Sahelian pastures, or the lake to be owned by a single agent. The inefficiencies likely to be involved in such schemes, if feasible, may render them unacceptable to many. It must also be stressed that, in many cases, it is the former users of the resource who will bear the whole burden of the inefficiency thus created: here is another reason why enforcement costs of privatization may turn out eventually to be unbearable.

Markets are perfect

A basic assumption underlying the proposition according to which development of private property rights in a resource will lead to efficiency is that all other markets are perfect and competitive. Indeed, it is only under this assumption that costless establishment of private property rights will increase efficiency. If other markets are absent or imperfect, the reform of traditional property arrangements may cause inefficiencies and paradoxically lead in some instances to the overexploitation of the resource. For instance, 'roughly 75 per cent of the publicly held rangeland and 60 per cent of the privately held ranges in the United States are in fair to poor conditions as a result of over-grazing' (Gilles and Jamtgaard, 1981: 129).3 What are the reasons which lead us to surmise that 'market failures' are an important source of concern when it comes to privatizing natural resources?

Absent markets

Standard economic arguments show that a necessary condition for the efficiency of private exploitation of an exhaustible resource is the existence of a complete (infinite) of forward markets. In fact, a sequence of momentary equilibria such that, at each period, the market for the flow of the resource clears and the rate of return to holding the resource stock is equal to the rate of interest (the Hotelling rule) is not sufficient to guarantee that the resource will be exhausted over an infinite horizon. This is due to the fact that complete forward markets do not exist to determine the correct initial price of the resource, p0, so as to ensure that the stock will be just depleted in infinite time. Given the absence of these markets, p0 may be either too high or too low. If too high, although competitive momentary markets always equilibrate, some portion of the resource stock will never be extracted. If too low, the stock will be exhausted in finite time (prematurely), assuming again that the agents cling to their myopic rule (i.e. the Hotelling rule). Presumably, however, the latter process will not persist, and traders will realize that the resource, at the current rates of exploitation, will be exhausted in finite time: they will buy up stocks and the spot price of the resource will jump. This argument can be generalized to exclude the possibility that any path for which the initial price, p0, is lower than the optimal price will be followed up to the point of exhaustion of the resource in finite time. This however does not remove inefficiency in resource use: indeed, exploitation goes too fast initially and too slow thereafter when compared to the optimal path. The following conclusion emerges: in the absence of a complete set of forward markets or, under uncertainty, in the absence of a complete set of forward contingent markets, a competitive private economy will be inefficient.

The problem is that, in real economic life, there do not exist many complete sets of forward markets for a resource (not to speak of contingent markets). As pointed out by Dasgupta and Heal, for exhaustible resources, 'the problems associated with the nonexistence of a suitable set of forward markets may well be more important and less tractable than those arising from externalities' (Dasgupta and Heal, 1979: 472). Moreover, it is not clear that the setting up of such markets, no matter how difficult it can be, necessarily leads to an increase in social welfare if other market imperfections remain.

The second point we would like to make is that many environmental resources exhibit characteristics for which no market exists. In other words, part of the social valuation given to such a resource cannot be reflected in competitive market prices. This is so because some of the features displayed by environmental resources, such as the recycling of CO2 by the forests or the beauty of a natural site, are public goods, a well-known source of market failure. It implies that, though everybody enjoys clean air or the beauties of an unspoilt Antarctica, if asked to, nobody would be ready to pay for it. Therefore, by neglecting some important roles played by environmental resources, markets fail to give the correct signals to private traders in the absence of state intervention. This argument is important, and has been repeatedly used by conservationists to support their claim for a better protection of environmental resources, notably in the form of state-protected areas. For instance, it is very unlikely that the world market for forestry products correctly reflects their role in recycling CO2, and that current deforestations in Amazonia, Sub-Saharan Africa, South-East Asia (Sarawak forests are currently being irreversibly destroyed), or Siberia (the forests of which represent 25 per cent of the world total resources, but are currently being destroyed at the rate of 4 million hectares per year) correspond to an optimal utilization of forest resources.

Seabright (1993) makes essentially the same point in connection with local commons. He indeed stresses the implicit contracting aspects of traditional CPRs: the users' entitlements and obligations are too complex and interlinked to be written in a formal contract and, moreover, they require reasonably long time-horizons to work effectively. And yet, implicit aspects are important because they induce informal cooperation among the users. According to him, therefore, privatization with tradability of private property rights may undermine the reliability of those co-operation arrangements. This is not only because fit is difficult to frame formal contractual rights so as to safeguard traditional entitlements', but also because privatization weakens the credibility of long-term contracts and suppresses the kind of interdependence and reputation effects that are conducive to informal co-operation practices. In particular, if sale of assets is possible, the incentive of customary users to invest in a personal relationship and to cooperate with the new private owner is dampened since there is no way the latter can credibly commit himself to sustain these 'relationship-specific' arrangements (Seabright, 1993: 124-9).

Imperfect markets

A second type of reason why one may suspect that private property does not necessarily increase efficiency is that some markets, and particularly the capital market, are imperfect. First, due to informational asymmetries (and the resulting problem of moral hazard), access to credit may be restricted to those having sufficient collateral. If the resource is sold by the State, those having a privileged access to capital are more likely to become private owners. Therefore, in the absence of state support, traditional users of the resource are likely to be denied access to it in the course of privatization. Though this is basically a distributive issue, it is important to see that efficiency may be impaired for at least three reasons: (a) if the legitimate interests of the former users are hurt, their passive or active resistance may cause enforcement costs to increase; (b) traditional users of the resource are likely to have developed particular skills and acquired a detailed knowledge of the resource which renders them more efficient to exploit the resource than outsiders (and markets for those skills and knowledge are bound to fail due to informational asymmetries), and (c) the market for private rights in the resource may become too thin and oligopsonistic practices, such as collusive arrangements, are likely to distort it. For instance, from a detailed study of the rope-making industry in the Himalayan foothills (Johri and Krishnamukar, 1991), we learn that raw material for making ropes is a wild grass, locally known as bhabhar, which grows on the Shivalite hills. It was a common property resource until British rule. Nowadays, the State has established state property over the grass which it sells during summer at an auction. Access of poor rope-makers to capital is so restricted that, in effect, 'the auction is attended by a handful of local traders who collude to keep their price hovering around the price first quoted' (ibid. 2898), and secure a net rate of return of about 50 per cent per year by selling the grass to the rope-makers. In recent years, credit co-operatives have started to appear to allow rope-makers to buy bhabhar at the auctions and circumvent the traders.

Furthermore, when access to sources of credit is imperfect, the extreme poverty of the agent who exploits the resource (be it a traditional user or a private owner) may have deleterious consequences since "poverty may be expected to drive up their rate of time preference to the point where all that matters is consumption today' (Perrings, 1989: 20). In the case of US rangeland referred to at the beginning of this section, poor people are led to 'stock their pastures at higher rates than do their larger more conservative neighbors. A result of this strategy can be overgrazing and environmental degradation' (Gilles end Jamtgaard, 1981: 132). In some cases, traditional users themselves may sell out their common assets to industrial concerns in order to get cash to meet immediate needs (more about this in Chapter 11).

The general line of the argument presented here is also applicable at a world-wide level. Given difficult access to international credit to pay off past debts and/or finance economic development, governments of capital-hungry developing countries may not resist the temptation to sell or to lease national resources. This may give rise to at least two kinds of serious problem. First, being under stress, governments may easily be led to sell their natural assets or rights of exploitation at abnormally low prices (as is evidenced in the case of fishing rights conceded to foreign fleets by governments of poor African coastal countries). Second, the new owners or users of the resources may be induced to overexploit them because they strongly doubt the ability of governments to make credible commitments on such touchy issues as those pertaining to the nation's natural patrimony. Their fear is actually that the agreements involved might well be soon rescinded if the economic situation of the host country improves or if political change brings to power a new government with a more nationalistic outlook.

The second reason why imperfect capital markets may lead to an inefficient exploitation of the privatized resource is that, in the presence of those imperfections, the interest rate fails to represent correctly the social rate of discount (see also Fisher, 1981: 68-71). It is often suggested that the market rate of interest is too high. It may result in the excessive exploitation of the natural resources and even in their destruction in those cases where the natural rate of growth of a renewable resource remains below the market rate of interest when its stock approaches zero.