Principle – Society accepts responsibility for sustainability.

Criterion- There is equitable access to and distribution of economic rents.

Indicator – Estimated distribution of rent capture.

Box B: Definition:

Economic rent is typically divided among five key players: the owners, managers, consumers, governments and local individuals and communities. In monitoring rents, one also obtains some idea of distributional issues; one can readily assess the share of the rent collected by each of the major players

Box D: Applicability to Different Landowners. Explain any differences.

N/A

Box E: Overlap.

CCFM: L5, 5.1

Notes:

The indicator is diagnostic, but could also have limited predictive capability if time series trends are examined.

Box I: Underlying Concepts:

As described by Ruitenbeek, and Cartier (1998), economic rents represent values above the cost of harvesting and looking after the resources. Most of the effort in maximizing the rents lies in proper technical management of the resource and in using the lowest cost methods to do so. The extent to which a given property, region, or country generates economic rents is therefore a potentially powerful indicator of economic efficiency. But measuring this rent can be complicated. It is typically divided among five key players: the owners, managers, consumers, governments and local individuals and communities. The actual level of rent realized, and the division of rent among these players, depends on a large array of institutional, policy, legal and technical circumstances. The royalty, fee or tax regime can have a significant effect on how much resource value is generated, how much is retained by owners and how much is extracted by governments. Managers, who may be responsible for any or all of logging, replanting, processing or marketing of the products, typically enjoy a share of the rent. Domestic consumers may also share in the rents through consumption subsidies. Rent shares to consumers are typically low, except in instances where entire forest stands have been turned over to communities to manage. Finally, individuals may be compensated through earnings for labor services or local communities may receive transfer payments derived from rents. Measures of rent can take different forms but all will provide an indication of economic efficiency: they all reflect, to some degree, both the economic efficiency of harvesting as well as the influences of the institutional and policy context. Another advantage is that, in monitoring rents, one also obtains some idea of distributional issues; one can readily assess the share of the rent collected by each of the major players.

Box J: Relevance to Sustainable/Unsustainable Management :

The ‘ideal’ democratic system, or ‘ideal’ system of justice, or ‘ideal’ understanding of fairness, has yet to be entrenched in any modern society. Yet most people are quite capable, in their own minds, of calling a given system ‘undemocratic’, ‘unjust’, or ‘unfair.’ In terms of looking for measures of equity, this suggests a similar stance. Most measures try to identify situations where someone – government, workers, the poor – is being treated inequitably. All of these issues, however, are primarily concerned with the distribution and allocation of goods and services within the society of the day and derive from the sustainability theme of ‘intra-generational’ equity. In this context, society pays attention to who gets what because doing otherwise might foment social unrest or undermine society’s altruistic ideals. From a theoretical view, it means promoting equity. From a practical view, however, it means seeking out and destroying inequity.

Box K: Measurement Methods :

Traditional economic models of inequality have focused on measures of income distribution. One such commonly understood measure is the Gini Index, which falls within a range of zero (for perfect equality) to unity (for perfect inequality). In many cases, simple ‘incidence’ measures are adequate to demonstrate whether particular groups are adversely affected.

The measurement methods for this indicator can be relatively simple: determine, on a percentage basis, the distribution of rents from forestry-related businesses and operations among capital owners, those providing labor services, and government. In a practical sense, this assesses the technical or factor distribution of income.

Box L: Data Required :

A system of economic accounts can provide the information needed for this indicator. For example, economic accounts constructed using the IMPLAN system (MIG, Inc., 1995) include the factor distribution of incomes, by industrial sector, for regional economies.

Box M: Data Used for the North American Test :

The factor distribution of incomes, by industrial sector, for the group of counties included in the study area was taken from the IMPLAN system (MIG, Inc., 1995).

Box N: Example Results:

Box O: Assessing the Practicality:

Given the availability of economic accounting information, such as that provided by the IMPLAN system, the indicator can be easily tracked over time for successive time periods. In the absence of economic accounts, the assessment would be extremely difficult.

Box P: Assessing the Information Value:

The utility of the information provided by the indicator is somewhat questionable. There is no absolute test that can be applied to determine whether the distribution of economic rents is "equitable". Perhaps the best test that can be applied is whether the distribution appears inequitable to the various stakeholders. Even so, the primary concerns about the distribution of incomes involves the share that accrues to local individuals and the proportion of returns that may accrue to land managers in lieu of land owners. In this case, it is evident that local workers have a significant share of the economic rents. The potential problem of managers expropriating excessive proportions of rent from owners is not evident in the study area since these types of land managing arrangements are not practiced here. If they were, it might be possible to apply a "fairness" rule such as "one-third/two thirds" shares between managers and owners.

Box Q: Overall assessment:

Strengths:

1. Well defined and easily measured, if economic accounts are available.

2. Addresses an aspect of inter-generational equity, a principle theme of sustainability.

Weaknesses:

1. Does not directly measure equity; may only indicate inequity.

Box R: Did you rewrite or revise to a new indicator. If so what?

No.

Box S: References:

Canadian Council of Forest Ministers; Natural Resources Canada, Canadian Forest Service, Headquarters, Ottawa, Ont. 1992. National Forest Strategy. Sustainable forests: A Canadian commitment.

MIG, Inc. (Minnesota IMPLAN Group, Inc), IMPLAN System (1995 data and software), 1940 South Greeley Street, Suite 101, Stillwater, MN 55082, www.implan.com, 1997.

Ruitenbeek, H. Jack and Cynthia Cartier. 1998. Rational Exploitations: Economic Criteria & Indicators for Sustainable Management of Tropical Forests. CIFOR working paper, draft of April 1998.

Please record your notes on evaluating the indicator here.