SUSTAINABILITY SCIENCE FOR PUBLIC POLICY: LAKE SEDIMENTATION, FOREST EMISSIONS AND THE GENERALIZED RESOURCE CURSE A DISSERTATION SUBMITTED TO THE GRADUATE DIVISION OF THE UNIVERSITY OF HAWAI‘I AT MĀNOA IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY IN ECONOMICS MAY 2012 By Majah-Leah V. Ravago Dissertation Committee: James Roumasset, Chairperson Lee Endress Sang-Hyop Lee Nori Tarui Creighton Litton Keywords: Lake water treatment, REDD+, forest degradation, climate change policy, Indonesia, resource boom, political economy, rent-seeking, Philippines Acknowledgments How do I thank thee all? Let me count the ways. I begin with saying mahalo, the first word I learned since coming to Hawaii and embarking on this journey. I could have not made it this far without the help and support of the people who were with me from the beginning and those that I have met along the way. This dissertation is the culmination of my journey as a graduate student and a testament that perseverance sprinkled with help and support will let one see the end of the rainbow. I first thank Jim Roumasset, chairperson and mentor, who taught me to see things from the lens of an economist. A grandfather who talks about the same stories over and over again interspersed with economic discussions. His patience with me has been extended beyond its limit. Thank you so much! I thank the members of my committee – Lee Endress, Sang-Hyop Lee, Creighton Litton, and Nori Tarui for guidance and encouragement throughout the stages of the dissertation. Their comments and suggestions have immensely contributed to the final version of this dissertation. Special thanks to Nori Tarui for his time and advice during my writing of the third-year paper. I also thank Baybars Karacaovali for serving as a proxy member during my defense. I thank the academic community, both in Hawaii and in the Philippines for the pedagogy and inspiration. I am grateful, in particular, to the faculties of Economics at the University of Hawaii (UH) and at the University of the Philippines (UP) for giving me the tools and training to be an economist. I hope to live up with their expectations. I thank Nic Briones and Ino Lansigan for letting me know the issue surrounding Laguna Lake; Glenn Tabios, Fernando Siringan and his staff Yvainne Yacat-Sta. Maria, and the staff of Laguna Lake Development Authority for sharing their engineering and geological perspectives on Laguna Lake; Mark Rosegrant for giving me a chance to study forest emissions; and Ramon Clarete for his insights on general equilibrium. This dissertation has also benefited from the people who just happen to be my friends and have endured reading the very rough draft of some or all chapters of my dissertation. Their editorial comments and suggestions helped shaped the final version of i this dissertation. I am grateful to Rowena Sancio and Hope Gerochi for being the test- runs of my papers. Big thanks to Lily Tallafer for applying her professional editing skills to this dissertation free of charge. Thanks also to Jane Kirton for catching my mistakes and the rallying support. All remaining errors are mine. Not every aspiring scholar is given a chance to study abroad due to financial outlay it requires. I am indebted to East-West Center (EWC) and EWC Alumni Association for the graduate degree fellowship and financial support. I am also grateful for the financial support and research funds received from different institutions throughout my graduate studies. Thank you to International Food Policy Research Institute (IFPRI), Southeast Asian Regional Center for Graduate Studies and Research in Agriculture (SEARCA), UH Economics Department, Water Resources Research Center (WRRC), and University of Hawaii Economic Research Organization (UHERO). I also appreciate the various travel funds I received, which gave me the opportunity to present my work outside of UH and meet scholars who share my academic interest. Thank you to UH College of Arts and Sciences - Office of Community and Alumni Relations, UH Graduate Student Organization, EWC Conference Travel Grant Office, College of Social Sciences for Professional Development in Research Office, and SEARCA-Asian Society of Agricultural Economist Travel Award Office. I have been surrounded with good people who made Hawaii a home away from home. Thank you to Marciana Galambao, Angel Acebes, and Hazel Parcon for the company while we were all students. Thanks to Midea Kabamalan and Rusyan Mamiit for the street-smart advice on Hawaii life and household inheritance that made my room more livable in my first year. Thank you to my UH Pinoy family for making me feel like I did not leave the Philippines. I refrain from enumerating names but special thanks go to Manang Josie and Manong Clint Clausen for being our foster parents. I am also thankful for the gorgeous ladies of Hale Manoa (6th floor ewa side) for the sisterhood and company. I hope our friendships remain even as we move on to our respective journeys. Friends, colleagues, and classmates from the UH Economics department made studying more interesting. Special mention goes to Olga Bogach, Melinda Podor, Duong Ngo, BJ Awa, Kim Burnett, Chris Wada, Kevin Nishimura, and Jordon Higa. ii Thank you to my friends and colleagues in the Philippines for your support all throughout my studies. Thank you to my SEARCA family and colleagues, especially Mercedita Sombilla and Arnold Garcia from the Research and Development Department; Edith Cedicol and her staff Blessie Saez from the Graduate Scholarship Department; and to Ruby Johnson, who I always run to for help. Thank you to Adora Navarro, Yen Nepomuceno, Johanna Romero, Joy Castro, and the Del’s Angels for always being there. Much love goes to my family and relatives for their incredible support and believing in me. Thank you to Tatay and Nanay for letting me pursue my dreams and reminding me to always thank the One above; to my brother James, who also serve as my research and personal assistant; to Kuya Engie, Ate Ghay, and my nephews Hajeck and Gemriel for their love and support. Last but not the least; I thank my former UP mentor and SEARCA boss, Arsenio Balisacan for pushing me to start this journey and pushing me more to finish. Above all, I thank God and give Him back the glory. How do I thank thee all? I finish by saying, salamat po! iii ABSTRACT This dissertation helps develop principles that that integrate aspects of policy analysis into sustainability science. The three principal chapters are 2, 3, and 4. Through an application to multiple sources of drinking water in the presence of other ecological services, Chapter 2 illustrates the problems and prospects of extending resource economics to more fully account for interlinkages in the resource system. In search of an alternative source of drinking water, lake water may provide an economically viable supplement to groundwater. The model solves for optimal extraction profiles and the corresponding shadow prices of drinking water taking into account the quantity and quality of lake water and storage capacity of the lake. The analytical result shows that efficient extraction follows the condition of price equal to marginal opportunity cost. The latter includes marginal user costs, which incorporate the scarcity value of “clean” water. The result provides important policy implications for the Philippines. Chapter 3 uses resource and environmental economics to devise a win-win plan whereby developed countries can incentivize improved forestry management in developing countries for better economic as well as environmental outcomes. It presents an alternative approach to Reducing Emissions from Deforestation and Degradation plus sequestration (REDD+), called Efficient Reforms for REDD+ (ERR). The model solves for the optimal harvest such that a social planner maximizes consumer and producer surplus given an initial forest stock and world prices. The numerical results show that, unlike positive efficient emissions for industry, baseline emission permits for highly iv degraded forests should be negative. For the case of Indonesia, potential gains from ERR is nearly twice as that from conventional REDD+. Inasmuch as practical reforms must be politically feasible, chapter 4 examines the political economy of the relationship between resource booms and the departures of public policy from what is optimal. This chapter explores the role of the generalized resource curse (GRC) as one possible reason for economic inefficiencies in countries such as the Philippines. GRC refers to the negative effects promulgated not only by traditional extractive natural resources but also by military bases, foreign aid, remittances, and some activities that induce exchange rate appreciation. v ` Table of Contents Acknowledgments................................................................................................................ i ABSTRACT ....................................................................................................................... iv List of Figures .................................................................................................................. viii List of Tables ..................................................................................................................... ix CHAPTER 1. Introduction ..................................................................................................1 1.1 Sustainable development and sustainability science ..............................................1