Forum The "nragedy of Services

CHRISTOPHER L. LANT, J. B. RUHL, AND STEVEN E. KRAFT

Derived from funds of natural , ecosystem services contribute greatly to welfare, yet are rarely traded in markets. Most supporting (e.g., formation) and regulating (e.g., purification, regulation) ecosystem services, and some cultural (e.g., aesthetic enrichment) and provisioning (e.g., capture , fuel ) ecosystem services are declining because ofa complex social trap, the "tragedy of ecosystem services," which results in part from the of common-pool . Additionally, current economic incentives encourage the development of funds of on private for marketable commodities at the expense of ecosystem services that benefit the public. Such ecosystem services are therefore underprovided. Most critically, reinforces these market failures by creating incentives to convert funds of natural capital into marketable goods and by assigning no property rights to benefits. Although there is no one pathway out of this tragedy of ecosystem services, potentially effective remedies lie in the evolution ofthe common law of property, in the reform of economic incentives, and in the development of ecosystem service districts. I I Keywords: common law of property, ecosystem services, , natural capital, tragedy ofthe

arrett Hardin's essay "The " way in which a fund of yields a flow of G catalyzed an ongoing debate about how the function- income or interest. Some authors have termed this flow ing of social and economic structures—what Hardin (1968) "natural income" (Daly and Farley 2003). Ecosystem service called "the remorseless working of things"—lay at the heart benefits have been estimated at roughly $33 trillion annually of environmental degradation and natural depletion. (in 1994 US dollars) across the globe, or about $5000 per capita In the last 40 years, Hardin's examples of the English village (Costanza et al. 1997). Erecting eífecüve policy institutions and common pasture and growth have been concrete legal instruments for the sustainable, equitable, and critiqued (Dasgupta 1996), and his faulty definition of a efficient provision of ecosystem services will be no small "commons" has been corrected (Ostrom 1990). Nevertheless, challenge, as it demands the reversal of deeply rooted eco- Hardin's original metaphor remains a potent explanation nomic incentives, established doctrines of private property, for overconsumption of some common-pool resources (e.g., and associated institutions. the collapse of the Atlantic cod ; MEA 2005) and As influential as Hardin's thesis has become—Costanza and excessive emissions of pollutants into environmental sinks at colleagues (2004) used the ISI index to show that it is the most the global (e.g., greenhouse gases; IPCC 2007) or local and cited paper in ecological —it is also flawed; in regional (e.g., nutrient runoff; Rabalais 2002) levels. Since 1968, fact, Hardin described the tragedy of open-access resources, ecological and econoriiic concepts of natural capital and but many resource allocation problems arise in the context ecosystem services have evolved, modifying and focusing of common-pool (not to be confused with common-property) this debate (Daily 1997, Daly and Farley 2003). resources. In the literature, the terms "common pool" and Whereas natural resources have been treated largely as a bi- otic and geologic stock of extractable resources for economic use, the emerging view focuses on as a capital fund Christopher L. Lant (e-mail: [email protected]) is a professor in the Department capable of yielding flows of ecosystem services, defined as "the of Geography and Environmental Resources, and Steven E. Kraft is professor benefits people obtain either directly or indirectly from and chair ofthe Department of Agribusiness Economics, at Southern Illinois ecosystems" (MEA 2005). The term "fund" underscores the University in Carbondale. ]. B. Ruhl is Matthews and Hawkins Professor of concept of ecosystems as a form of natural capital that yields Property at Florida State University's College of Law in Tallahassee. © 2008 a flow of ecosystem services per unit of time, similar to the American Institute of Biological Sciences. www.biosciencemag.org November 2008 / Vol. 58 No. 10 • BioScience 969 Forum

"common property" are often mistakenly used interchange- • Users develop and support their own rules for resource ably, thus confusing analysis of resource-use problems. For a monitoring and use and thereby view these rules as common-pool resource, it is difficult to deny potential ben- legitimate and help to enforce them. eficiaries the use of the resource once it has been created by or by ; it is therefore "nonexcludable." Common- • Large-scale institutions such as governments and pool resources have two components: (1) a fund (natural corporations support and legitimize these rules capital) and (2) the flow ofbenefits it yields (natural income and institutions. including ecosystem services). When the fund is degraded or destroyed (i.e., depreciates), it endangers not only the quan- • Appropriate sanctions for violations and procedures fity and quality of future flowsbu t also the viability of the ñand for conflict resolution are established. itself. In contrast, common property refers to a property rights • Outsiders can readily be excluded from directly regime that determines rules under which the members ofa exploiting the resource. community may access and use a common-pool resource (e.g., how much of the natural income can be used in any period, • Outside influences, especially global economic driving how it can be used, and who can access it, as well as the con- forces, are understood, and their influence on the ditions under which the fund itself can be used). In the ab- common-pool resource can be managed. sence of a socially informed property rights regime for using common-pool resources, they become open-access resources • There is an institutional capacity to adapt rules and can be exploited to the point of collapse; this is Hardin's to changing technological, ecological, social, and tragedy ofthe commons. economic conditions. The distinction between open-access and common- • Governance institutions use a variety of mechanisms property resources is particularly relevant because the insti- (e.g., quotas, time and space restrictions on use, taxes tutional solutions suggested by Hardin—dividing the re- and fees, and tradable permits), are geographically source into private property or governmental control of its nested, and are somewhat redundant to provide for utilization—omit what can sometimes be the most effective adaptability and checks and balances. solution for governing common-pool resources—developing the institutional frameworks and for an effec- Clearly, building institutions that contain each of these tive self-governing common-property rights regime (Os- elements is a steep challenge, one that is rarely fully met, trom 1990, Pretty 2003). Moreover, privatization or increasing which explains why governing common-pool ecological re- governmental control of common-pool resources often ex- sources is always a struggle that succeeds or fails in a kalei- acerbates local poverty or leads to resource mismanagement doscope of ever-evolving outcomes. In advanced market stemming fi'om bureaucratic detachment from local ecolog- , market and government-based institutions in- ical dynamics (Holling and Meffe 1996). An empirical and nor- creasingly dominate local forms of social capital (Putnam mative literature (Ostrom et al. [1999] and Dietz et al. [2003] 2000) to manage services from large-scale ecosystems. In provide insightful synopses) now describes the key elements fact, it is in developing countries where approaches to resource of an effective commons and, in some cases, how to establish use more often incorporate key elements of effecdve commons effective markets in ecosystem services. Fortunately, it is not (Baland and Platteau 1996); some 400,000 to 500,000 local necessary for all ofthe elements listed below to be in place for groups have formed worldwide since the early 1990s for the a commons to function effectively: management of watersheds, , , integrated pest management, and microfinancing for rural development • There is an appropriate geographical definition of the (Pretty 2003). common-pool resource being governed, from the What falls short in this rich body of literature is an exam- global atmosphere to small-scale watersheds and ination of the dynamics inherent in market and legal insti- , fishing,o r hunting grounds. tutions for the provision of ecosystem services from privately owned funds of natural capital, especially ecosystems on pri- • There is a scientific capacity to observe and measure vately owned lands, as opposed to the of nat- changing resource conditions on an ongoing basis. ural capital stocks and utilization of environmental sinks. We suggest a revised thesis to address this need, which we call "the • Social capital—interpersonal relationships in which tragedy of ecosystem services" in honor of Hardin's seminal trust develops over time—among resource users is contribution. strong enough to enforce the rules regarding resource utilization among community members so that free The diagnosis: Why ecosystem services are deciining ridership (using the resource without paying for it) The findingsofth e Millennium Ecosystem Assessment (MEA is minimized. 2005) show that marketable services fare better than services

970 BioScience • November 2008 / Vol. 58 No. W www.biosciencemag.org Forum that either are nonmarketable or that derive ftom natural cap- invest in their long-term availability. Landowners preferen- ital lacking clearly defined property rights. For example, tially develop their properties to produce marketable com- among provisioning services, , livestock, and aquacul- modities and services (private goods) because they obtain the ture fish production are increasing, while capture fisheries benefits of doing so and bear only a small share of the (FAO 2004) and other wild , fuelwood, genetic re- opportunity costs associated with the diminishment of eco- sources, valuable natural chemicals, and freshwater are de- system services. This is true even if the value to society of clining. Most regulating services (air quality; regional and local the sacrificed ecosystem services exceeds the economic gains ; , pest, and natural hazard regulation; water to the landowner. Floodplains, , and that purification; and ) are declining, and water arid provide carbon storage, , pollination, water disease regulation are experiencing geographically variable purification, and -control services are drained, cleared, outcomes; only has been enhanced. planted to crops, converted to pasture for livestock, harvested This evidence is supported by other studies. For example, agri- for timber, or urbanized. cultural intensification has diminished the ecosystem ser- Unlike the tragedy of open access, which occurs when vices provided by agricultural in Sweden from the there is no extant system of property rights regulating access 1950s to the 1990s (Bjorklund et al. 1999). In the long run, to the resource, resulting in the overconsumption of re- the loss of supporting and regulating services undermines sources and overutilization of environmental sinks, the efforts to meet increasing demands for marketable provi- "tragedy" of ecosystem services is that they are underprovided sioning services such as production (Tilman et al. 2002). (table 1). Under market forces alone, other services that gen- A diagnosis explaining why supporting, regulating, and erate positive (e.g., education, medical research, some provisioning and cultural ecosystem services are de- vaccinations) or that are nonexcludable (e.g., most roads) clining has been implicit in and environ- would also be underprovided for similar reasons. The dif- mental economics for decades, and is a central component of ference is that massive public institutions informed by pub- the emerging school of . The economic lic policy have been erected to provide these essential public distinction between private goods and public goods is essential services, however imperfectly, whereas institutions and poli- to this diagnosis. cies for assuring the continued provisioning of ecosystem ser- Private goods, such as barrels of crude oil or bushels of corn, vices are nascent or even absent. are utilized in a rival manner; once someone has consumed Recent in-depth analysis of US law and policy concerning the good, it is not available for another person. Private goods ecosystem services has revealed a legal dimension of Hardin's are also excludable; it is possible to prevent those who have "remorseless working of things," where the common law of not purchased the good from having access to it. In contrast, property seals the deal because those who had benefited ftom public goods, such as improvements in air and , ecosystem services have no legal recourse when these are lost are both nonrivai and nonexcludable: one person's utilization (Ruhl et al. 2007). In fact, US law has built a carefijlly con- of the good does not prevent others from also using it, and structed wall designed to prevent consideration of ecosystem it is not possible to prevent people from having access to service benefits from interfering with development of the good once it is provided. Consequently, public goods and, under prior appropriation, water for commodity pro- tend to be underprovided because the producer is unable to duction. US common law evolved over time to disfavor leav- take full advantage of their value by charging for them; rather, ing land in its wild, undeveloped state (Sprankling 1996), potential users have free access to them. meaning owners of lands and the accompanying diversity For owners of natural capital, ecosystem service provi- of ecosystems have little incentive to treat them as a fund sion is a positive . An externality exists when the pro- of natural capital providing valuable ecosystem services. No duction or consumption activities of one individual or firm counterbalancing doctrines have arisen to enable or require positively or negatively affect the consumption or production a property owner to protect or enhance the continued flow activities of another individual or firm. In the case of ecosys- of essential services from ecosystems on their properties. tem services flowing ftom privately owned land, the landowner This is the situation regardless of whether the ecosystem receives no compensation for providing the services and has services are utilized locally, regionally, or globally (Ruhl et al. no financial incentive to continue providing them. Hence such 2007). services tend to be underprovided. Because of these charac- The diminishment of ecosystem services is thus the result teristics, coupled with the significant social value of many pub- of a complex "social trap" (after Costanza 1987). The trap and lic goods, institutions informed by public policies and laws how we envision escaping it proceed in no small measure ftom have been developed to assure the provisioning or protecfion our conceptualization of ecosystems and their place in our of many public goods (see Kaul et al. 1999). society. Do we perceive them to be funds of natural capital Except for provisioning services, ecosystem services are yielding flows of ecosystem services supporting human wel- also generally nonexcludable; once provided by nature or fare and, as such, resources to be managed by institutions and society, they accrue to all within the affected geographical area. policies distinct ftom those governing private property? Or Nonexcludability encourages free riders, who receive eco- do we perceive ecosystems as just another part of the land- system service benefits without having to purchase them or scape that has been divided up into privately owned parcels

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Table 1. Likely outcomes for management of natural capital under various property rights and resource usage regimes.

Usage regime

Rivai or consumptive Congestibie use of Nonrivai use of Property rights regime and exciudable nonexciudabie common pooi nonexciudabie common pooi

Private property Potentially efficient level of Underprovision (e.g., Underprovision (e.g., ecological production (e.g., most goods restoration for nutrient removal restoration for and aesthetic produced in competitive markets) and carbon sequestration) values) Public property (government Perverse subsidies often lead to Common public goods provided by Pure public goods provided by property can come in the form of overuse (e.g., subsidized governments (e.g., parks, roads, governments (e.g., national defense, direct land ownership, regulatory and grazing on public lands, use treatment ) air quality regulation) authority over public resources, of public for irrigation, or as a trustee) production of timber from national forests) Common property Potentially sustainable levels of Potentially sustainable utilization Generally sustainable use (there are few (various sources of rules for consumption (see points above (see points above e.g., Mongolian empirical examples because these access to and use of the under conditions for a well- pastures, tribal fishing grounds, resources are open access until they resource) functioning commons) (e.g., Maine lobster fishery, fishery become congestibie) unitized oil fields since 1933) management plans) Open-access (res nullius) Unsustainable overconsumption Unsustainable overuse (e.g., Free and sustainable use (e.g., use of (e.g., rule of capture for fish, greenhouse gas accumulation, atmospheric , aesthetic values) wildlife, oil [pre-1933]) fertilizer runoff leading to eutrophication

Note: The categories listed under "Usage regime" are commonly accepted points along a continuum of empirical regimes. Examples arc given from the natural resources and ecosystem service arena. Markets potentially produce efficient levels of production only in the "private property" regime when usage is rival or consumptive. Examples of sustainable use within an open-access property regime are increasingly rare. Hardin's tragedy ofthe commons occurs under open-access regimes when usage is rival or congestibie, resulting in overconsumption or overuse. The tragedy of ecosystem services occurs when nonrivai or nonconsumptive services are underprovided by private-property owners. whose management and use are determined by their owners? Ritchie 2005). The root ofthe problem for ecosystem services How we answer this question may determine the future via- has been the law's utilitarian premise that developing natural bility of essential ecosystem services (MEA 2005). resources invariably puts land to higher and better uses and What the literature currently reports is that a fauure to de- maximizes social welfare where both are measured in mon- velop common-property institutions often leads to depletion etary terms. Yet this has been a distinctly American phe- or degradation of funds of natural capital and diminished nomenon, as 19th-century courts, in pursuit of development- flows of vital ecosystem services. In a perverse positive ex- friendly doctrines in a sparsely populated land of surplus ternality dynamic, the nonexcludable, public-good nature natural capital and scarce , departed from of supporting, regulating, and some cultural and provision- British rtiles of nuisance law and core property principles that ing ecosystem services leads to their underprovision, and were much more cognizant ofthe interdependence of prop- existing public institutions fail to make up the growing gap erty owners on a crowded agrarian island (Sprankling 1996). between what society needs and what is being provided. The science of ecosystem services is demonstrating that the Property law, the backbone of common law, reinforces these premise behind that movement in American property law is market failures because, in advanced capitalist states, ecosys- sorely misguided in many—if not most—cases. But there is tem services have no legal status; their status as common-pool no reason to believe that the common law moves only in one resources is not recognized. Similarly, those individuals and direction, that we are stuck in 19th-century property law communities benefiting fi-omecosyste m services have limited notwithstanding what we have learned about natural capital legal recourse to assure the continued availability of essential and ecosystem services. Rather, this is precisely the sort of new services in adequate and timely amounts to meet their own knowledge the common law embraces, and several recent needs or those ofthe larger society (Ruhl et al. 2007). judicial decisions from around the United States show that courts, when informed about ecosystem services, are more Remedies for the tragedy of ecosystem services than willing to revisit previously settled principles. For ex- While there is no one pathway out of this social trap, poten- ample, a Rhode Island court recently prevented a developer tially effective remedies lie in (a) the evolution ofthe common from filling a marsh area on the ground that the marsh law of property, (b) reforming economic incentives, and (c) benefits other properties by filtering and runoff, the development of ecosystem service districts. and a Louisiana court ruled that a freshwater diversion Although common law has evolved doctrines that disfavor project would further the public trust in navigable water ecosystem services, nothing about common law is static. The resources by restoring coastal wetlands that mitigate storm law of property, in particular, is recognized as always a work surges (as discussed in Ruhl et al. 2007). Hence, although its in progress, with new knowledge and changed circumstances movement may be slow and will depend on litigants to fueling judicial adjustments to applied principles (Blumm and demonstrate the utilitarian value of natural capital and eco-

972 BioScience • November 2008 / Vol. 58 No. 10 www.biosciencemag.org Forum system services provided by that capital, there is good reason • Develop institutional frameworks that promote a shift to believe the common law of property will respond accord- from single-purpose resource management to more ingly over time. Indeed, an expanded definition of social holistic and integrated approaches (Hanna and welfare that embraces the critical role ecosystem services play Slocombe 2007). in sustaining human welfare will facilitate this process. Of course, by no means can developments in the common • Enjoy the type of.power and authority (e.g., regulatory, law alone correct the tragedy of ecosystem services. Regula- market-based, incentives, reporting and information tory policy, which was built in the 1970s primarily around pol- requirements, planning requirements, voluntary) and lution control and endangered protection, has largely financing mechanisms (e.g., taxes, fees, bonds) generally overlooked the value of ecosystem services and thus is in associated with governments, but also be capable of need of reform. establishing democratically based legitimacy at local The natural resource, environmental, and ecological eco- levels. nomics literature is rich with suggested policy reforms that would internalize negative externalities and reward positive • Build the institutional capacity (i.e., budget, staff, and externalities in a manner that would encourage cost-effective expertise) to carry out complex scientific, economic, provision of ecosystem services. Some of the most pertinent and social analyses and take responsibility for making contemporary examples include the following: policy and regulatory decisions through public, trans- parent procedures. • Tradable pollution permits, especially for carbon Moreover, the nesting of political authority (federal, state emissions and sequestration (Tietenberg 2006), to or provincial, regional, local) and geographic scale must be motivate private landowners to store additional carbon , coherent. Watershed boundaries are a good candidate for on their lands rather than in the atmosphere. such nesting under state or provincial leadership. Given the diversity in ecosystem services and the ways in • Switching from production-based agricultural which they benefit people, the political challenge of over- subsidies to ecosystem service-based subsidies to coming the tragedy of ecosystem services lies in bringing increase provision of carbon storage, , these three strategies to bear in the best possible manner for , and wildlife habitat on private rural each unique situation. land (Brouwer and Lowe 2000). Acknowledgments • Incrementally shifting taxation from income to pollu- This material is based upon work supported by the National tion fees and (Bovenberg and Science Foundation (NSF) under grant 0410187. Any opin- van der Ploeg 1998), and reducing or eliminating subsi- ions, findings, and conclusions or recommendations ex- dies for natural resource production and consumption pressed in this material are those of the authors and do not (Myers and Kent 2001), to slow the depreciation of necessarily reflect the views of the NSF. We thank Elinor Os- funds of natural capital from which ecosystem service trom, James Salzman, and three anonymous reviewers for their are derived. helpfiil comments on previous versions ofthe manuscript.

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