Date of Award

2011

Degree Type

Dissertation

Department

Environmental & Natural Resource Economics

First Advisor

Emi Uchida

Abstract

Forest degradation has steadily increased throughout much of the world. The cause of this continued degradation is complex and multifaceted but there is a growing realization that a key cause, especially in developing countries, is insecure rights to ownership and use of forest resources. This realization coupled with a call for pro-poor forestry policy has stimulated the recent trend in forest policy toward strengthening property rights for forest resources by transferring property rights from the state to communities and individuals, giving them defined rights to manage and extract forest resources. However, a big puzzle remains unsolved—such reforms on property rights have not consistently led to the intended sustainable resource use and management, particularly in developing countries.

The overall goal of this dissertation research is to offer insight into why forest tenure reforms may not always lead to their intended effects by focusing on how an individual’s preferences over time and risk affect individual responses to forest tenure reforms. Since forest management involves dynamic decision making with uncertainty in future returns, individuals’ forest management decisions, as well as their responses to forest tenure reforms, will depend on: 1) how an individual perceives preference for income today versus the future (time preference), and 2) an individual’s attitude towards risk (risk preference). For example, even if individuals are given secure property rights, those with strong preference for current benefits (most commonly observed among the poor) may have the incentive to use forest resources faster. Failure to recognize the impacts of time and risk preferences of individuals may result in outcomes that policy maker sought to prevent. Furthermore, forest tenure reforms are often implemented in areas where the poverty rate is high. Those living in poverty are often assumed to have both high discount rates (i.e., impatient) and high levels of risk aversion, which make them less likely to make investments. Such characteristics may also hinder the intended effects of forest tenure reforms.

This study examines these issues in the context of rural China, where a large-scale reform of forest property rights is being implemented in areas where the poverty rate is still high. To examine these issues, this dissertation research has three objectives: 1) identify the impact of forest property rights reforms on forest management decisions and how individual risk and time preferences may augment those impacts; 2) examine the correlation between time and risk preferences and poverty; and 3) identify the effect of the forest tenure reform on household wealth.

This dissertation research contributes to the literature on the effect of property rights reforms on natural resource management in developing countries in several ways. This study is the first to use a large-scale property rights reform to examine the heterogeneity of its impact on forest management due to risk and time preferences. Moreover, it integrates experimental economics methods into natural resource management, which is an innovative approach to test the behavioral reactions to policy alternatives. This study is unique because it tests the theory by integrating field experiments to capture risk and time preferences and panel survey data to capture poverty and forest management decisions.

To achieve the research objectives, I first designed experiments to capture individual time and risk preferences and then ran them in the field with farmers in China. Then I integrated data the field experiment data with a household panel data in an econometric framework. In manuscript 1, I use this integrated data set to examine how preferences over time (present vs. future) and risk can affect households’ forest management responses to strengthened forest property rights. I find that risk and time preferences impact households’ forest management responses to forest plot certification. Specifically, in response to forest certification, more risk averse households used less labor for harvesting and more labor for applying inputs, while more loss averse households used more labor for harvesting. Households with higher discount rates (i.e., impatient) used less labor for applying inputs and spent less on forest inputs (chemical fertilizer, pesticides, and seeds) in response to receiving a forest certificate.

Manuscript 2 investigates the correlation between poverty and individual preferences for time and risk. The classic assumption is that the poor have both high levels of risk aversion and high discount rates. Contrary to this assumption, my research demonstrates that wealth does not have a significant effect on risk aversion or loss aversion (with the one exception that households with more forestland per capita are less loss averse). However, consistent with this assumption I find statistically weak evidence that households with lower wealth have higher discount rates (i.e., more impatient).

In manuscript 3, I examine the effect of forest tenure reform on household wealth. I find statistically weak evidence that the forest tenure reform has had a positive effect on household wealth, specifically, increased tenure security in the form of a forest certificate increased net worth per capita by 42% between 2000 and 2008. To further examine the source of increased wealth, I also examine the effect of the reform on household forest use. Results suggest that forest certification increased bamboo revenue, while obtaining a new plot (without a forest certificate) increased non-timber forest product revenue, although these results are statistically weak. Overall manuscript 3 provides weak evidence that forest tenure reform garners potential for improving poor rural households’ livelihoods in China.

Overall this dissertation research demonstrates that time and risk preferences matter for forest management and responses to forest tenure reforms. This suggests that policymakers designing and implementing tenure reforms should consider the particular context of the reform and consider coupling the reform with appropriate programs and instruments to alleviate poverty and to help households’ to deal with risks and make long-term investments to further stimulate the intended effects of the reform—increased investment in forest resources and improved livelihoods.

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