CONCEPTUAL AND THEORETICAL FRAMEWORK
2.1. INTRODUCTION
Key concepts discussed in this chapter include; economic values of natural resources, valuation techniques, willingness to pay, nature of shea production and exploitation, governance and institutional arrangements.
2.2. MEASUREMENT OF ECONOMIC VALUE
Neo-classical economist adopts a distinct value system based on the utility derived from an environmental good (Mohd-Shahwahid, and McNally, 2001). They explain that, only things that give human beings happiness have value. For instance, if shea trees can offer us butter and fuel wood/charcoal to meet our needs, it means shea trees have value. The value of natural resources such as shea trees to society can change in both quantity and quality, it is always ideal for them to be measured or valued. These values are revealed by the amount the individual is willing to pay for a change or improvement when the resources are owned by other stakeholders or how much they are willing to accept in exchange for the loss or damage of these environmental goods (Pagiola et al., 2007). For appropriate valuation of these resources, natural resource values are categorized into several values under the total economic value framework with proposed techniques for valuing them.
2.3. TOTAL ECONOMIC VALUE
The total economic valuation theory categorized values from an ecosystem into two; use and non-use values (Pascual et al., 2010). The first aggregated value of an ecosystem service benefits provided in a given state under the concept of TEV is often known as output value. The second aspect relates to the natural ecosystem’s ability to maintain these values in the face of variability and disturbance often described as insurance value (Pascual et al., 2010).The ensuing describes the various categories of total economic values of forest natural resources such as shea trees (Mohd-Shahwahid and McNally 2001; Pascual, 2010).
2.3.1. USE-VALUES
2.3.1.1. DIRECT VALUES
These are ecosystem goods and services that are either directly used for consumptive or non-consumptive purposes (MA, 2005; Pagiola et al., 2004). This implies that, benefits that accrue from harvesting of food products, timber for construction, medicinal products for health benefits, and hunting of animals for consumption from natural or managed ecosystems are all examples of consumptive use. On the other hand, non-consumptive uses of ecosystem services include enjoying recreational and cultural amenities such as wildlife and bird-watching, water sports, and spiritual benefits that do not require moving them from their original places
2.3.1.2. INDIRECT USE VALUES
A lot of ecosystem services are used as intermediate inputs for production of final goods and services to humans (Mohd-Shahwahid, and McNally 2001). They identified these inputs as; water, soil nutrients, pollination and biological control services for food production. They also argue that, some of these ecosystem services contribute indirectly to the enjoyment of other final consumption goods, such as water purification, waste assimilation, and other regulation services leading to clean air and water supply and reduced health risks
2.3.1.3. OPTION VALUES
These are derived from preserving the option to use in the future ecosystem goods and services that may not be needed by individual at present, either by oneself (option value) or by others/heirs (bequest value), (MA, 2005).
2.3.1.4. BEQUEST VALUE
Pagiola et al (2004) described bequest value as benefits individuals derived from preserving certain goods for future generations. For example, many people are concerned with future damages from global warming and would be willing to pay to reduce them, regardless of the fact that the vast majority of the damages are expected to affect the earth long after our current generation is gone (Pagiola et al., 2004).
2.3.1.5 QUASI-OPTION VALUE
This is a kind of option value that represents the value of avoiding irreversible decisions until new information reveals whether certain ecosystem services have values that are currently unknown (MA, 2005).
2.3.2.0. NON-USE VALUES.
Non-use values refer to the enjoyment people may experience simply by knowing that a resource exists even if they never expect to use that resource directly themselves. This kind of value is usually known as existence value or, sometimes, passive use value (Pagiola et al., 2004).
2.3.2.1. EXISTENCE VALUE
According to Pagiola et al., (2004), existence value reflects benefits from simply knowing that a certain good or service exists. For example, some people derive satisfaction from the fact that many endangered species are protected against extinction. He argued that, many people are prepared to pay for protection of these species’ habitats, even those located in remote, hard to access areas. Although those placing the value will most likely never travel to these places, or see the species, they nonetheless value the knowledge that such species exist (Pagiola et al., 2004). Knowledge of these values has been the brain behind the protection of endangered tree species across the globe by Convention on International Trade in Endangered Species (CITIES). Figure 2.1 shows the various values of a forest ecosystem.
Figure 2.1: Total economic value framework (Pagiola et al., 2004)
2.4. Valuation techniques for valuing natural resources
There are four basic approaches to valuing environmental or natural resource goods. These are price-based valuation methods, hypothetical market, surrogate market valuation methods, and cost-based approaches (Pagiola, 2010).The ensuing describes each method in detail.
2.4.1 PRICE-BASED VALUATION METHODS
According to Pagiola (2010), these methods are best adopted when formal markets exist for environmental goods and services to be transacted. Using market prices gives an underestimate of the true WTP, since consumer surplus is ignored (Pagiola et al., 2010).
2.4.2. SURROGATE MARKET VALUATION METHODS
Pagiola indicates that, surrogate market valuation techniques are used when there is no formal market to measure an environmental value but there exists information about a related good or service transacted in the marketplace that can be used to infer the value. Techniques where the benefit can be derived from other markets include the hedonic pricing method, the travel cost method and the change in productivity approach.
The TCM estimates how much people value an environmental location by the costs they are willing to incur in travelling to it. It takes into consideration, the environment in terms of the provision of recreational services rather than basic ecological goods and services. The fact that people incur costs to visit these sites enables a demand function for the attraction to be established, in which the visitor rate is related to the travel cost (Pagiola et al., 2010).
The CoP method can be used whenever an environmental service or function acts as an input into the production of marketable goods. For example, the watershed protection functions of forests help control the quantity and quality of water flows. Deforestation can contribute to a reduction in agricultural productivity through soil erosion, sedimentation and flooding. This technique estimates the changes in output as a result of loss of environmental services. However, identifying and measuring the complex ecological linkages can be very difficult, unless data and models exist (Pagiola et al., 2010).
2.4.3. COST-BASED APPROACHES
The most widely applied techniques in this grouping are the preventative/defensive expenditure and replacement costs techniques. The former reveals people’s valuation of ecological services by observing their actual expenditures to prevent the loss, or to defend themselves from the consequence of the loss. These cost-based approaches are based on a number of assumptions: that such actions are effective and able to perfectly substitute environmental quality; there is complete information and therefore environmental risks are well perceived and understood and there are no capital constraints. In principle, the costs incurred voluntarily in a free-market situation to mitigate or reverse an environmental impact will be equal to or less than the value of the impact.
2.4.4. CONSTRUCTED OR HYPOTHETICAL MARKET APPROACH
In situations where market values cannot be observed, either directly or indirectly, market-like behaviour can be inferred through surveys or direct questions. The most widely used technique of this type is the contingent valuation method (CVM). By setting up a carefully worded questionnaire, CVM elicits individuals willing to pay (WTP) for an environmental benefit (e.g. to preserve the view of a beautiful landscape, improve air quality), or how much money they would be willing to accept (WTA) for a loss of environmental quality. The aim of this method is to elicit valuations that are as close as possible to what would be revealed if a market truly existed. To be carried out successfully, CVM requires careful sampling, training of enumerators and long periods of preparation and analysis. Information can be obtained directly from respondents or via a personal interview or mail questionnaire. It is the only technique able to capture non-use environmental values.
Table 2.1: Categories of economic valuation methods
Price-Based Valuation
Market Prices
Shadow Prices
Related or
Substitute Good
For Evaluating
Timber and
Non-wood Products
(food, medicine,
handicrafts)
Fisheries Surrogate Market Valuation
Hedonic Prices
Travel Cost
Change in Productivity
For Evaluating
Environmental Amenities
Recreation and Ecotourism
Regulatory
Ecological and Environmental Functions (flood Control, nutrient cycling, carbon
sink, micro-climate regulator
Constructed
Market Valuation
Contingent
Valuation
Choice Modelling
For Evaluating
Recreation and
Eco-tourism
Ecological and
Environmental
Functions
Protected areas
Cultural and
Religious Values Cost-Based Valuation
Opportunity Cost
Replacement Cost
Relocation Cost
Preventive /Defensive
Expenditure
Dose Response
Function
For Evaluating
Damages to protected
areas
Losses of ecological
and environmental
Functions
Health impacts
Adopted from Pagiola (2010)
2.5. THE THEORETICAL MODEL
The theoretical model for determining willingness to pay for this study was adopted from a model proposed by Carson and Hanemman (2005).The economic value of a non-market good like shea trees to an individual can be measured by determining the magnitude of their WTP for the good. According to Carson and Hanemann, WTP is defined as the amount that must be taken away from a respondents’ income while keeping their utility constant to meet the cost of providing the non-market good (i.e., conserving or planting shea trees).
Most scholars employed the random utility model approach for dichotomous contingent valuation responses to estimate the WTP (Hanemann 1984, Haab and McConnell 2002). Hanemann(1984) rationalized dichotomous CV questions putting them in a framework that allows parameters to be estimated and interpreted. Hanemann, recommended deriving WTP from the indirect utility function. The indirect utility function of respondent ‘j’ can be formulated as follows;
Vij= v(Yj, Qj, M, P)…………………………………………………………(1)
Where, V (.) is the indirect utility function, Yj, is the respondent income, Qjis the current condition of shea trees in the area, M is the socioeconomic characteristics of respondent that might influence their WTP and P is a vector of individual characteristics affecting the trade-off that the individual is prepared to make between income and the non-market good (sustainable shea trees). For the status quo, where there is no effort to conserve or plant shea trees (i=0), the indirect utility function of the respondent is given by:
V0j= V (Yj, Q0, M, P)……………………………………………………….(2)
Letting 0 superscripts denote the initial (status quo) conditions of no effort towards conservation/production of shea trees and 1 superscripts denote the new conditions, (sustainable conservation/production of shae trees) then Q0is the current situation of shea tree and Q1 is newer situations. If the respondent is willing to pay some money C (Cj> 0) for the sustainable conservation/production of shea trees, because of quality and quantity changes (Q1> Q0), the indirect utility function of the respondent is given by:
Vij= V (Yj¬_Cj,Qj, M, P)…………………………………………………………(3)
In a general market equilibrium, we need to consider the amount of income that the respondent will give up to make him/her indifferent between an initial condition (i.e., the current condition of no sustainable conservation/production of shea trees where income is at Cj and good at Q0, and final situation (in this case the sustainable conservation/production of shea trees, where income is at Yj -Cj and good is at Q1).
Economist calls this amount of income, the compensation variation or the WTP (Haab and McConnell, 2002). Therefore, the compensation variation in the sustainable conservation/production of shea trees is given by a mathematical equation below;
Vij= V (Yj, Q0, M, P) =V (Yj¬_Cj, Q1, M, P)
Where v (.) is the indirect utility function, y is the income of respondent, Q0 is the level of goods in the current situations of no sustainable conservation/production of shea trees, Q1 is the level of goods in the sustainable shea conservation/production program (Q0>Q1an increase is desirable), M is the socioeconomic characteristics of respondent that might influence their WTP and P is a vector of individual characteristics affecting the trade-off that the respondent is prepared to make between income and the non-market good (sustainable conservation/production of shea trees). C is the compensation variation that is the WTP amount of the respondent.
2.6. NATURE OF SHEA TREES PRODUCTION, CONSERVATION AND EXPLOITATION
Shea trees, (Vitellaria paradoxa), occur either in agro forestry parklands or in the wild; undomesticated (Boffa et al., 1999). About 5 million shea trees remain undomesticated in the wild, occurring naturally in the savannah woodlands of arid and semi-arid areas of West and East African countries (Ferris et al., 2001). Majority of farmers over the last decades have attempted domesticating these trees by integrating them with agricultural crops.
Natural regeneration has been a major method of shea production but recent methods include, pollarding, grafting, and coppicing (Bup et al., 2014). However, the purported long gestation period of the tree remains among other reasons why shea tree plantation development remains low (Okiror et al., 2012).
Shea trees have been exploited over several decades for numerous purposes. According to Ferris et al., (2001) and Okiror et al., (2012), shea trees are exploited by various local communities for their root, barks and leaves for medicinal purposes. Other products includes; the nuts which produces one of the finest butter and vegetable oils for the preparation of local dishes and the manufacture of confectionery products such as biscuits, chocolate and other cocoa butter substitutes (Ferris, 2001). Masters et al., (2004), indicates that, the wood of shea tree is hard, resistant to termite attacks. This makes it suitable for the production of building and roofing poles. Furthermore, the hardness characteristic of the wood of shea trees makes it a preferred tree species for the production of charcoal and wood fuels for small households’ and cottage industries energy needs (Masters et al., 2004).
2.7. GOVERNANCE
Although, the concept of governance is widely discussed among policy makers and various scholars, there is no consensus to a single definition of governance. A few definitions from some organizations and institutions on governance are discussed in this section.
According to Kaufmann (2010), World Bank describes governance as the traditions and institutions by which authority in a country is exercised. This includes (a) the process by which governments are selected, monitored and replaced; (b) the capacity of the government to effectively formulate and implement sound policies; and (c) the respect of citizens and the state for the institutions that govern economic and social interactions among them.
From the perspective of United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP); good governance is governance that is participatory, consensus oriented, accountable, transparent, responsive, effective and efficient, equitable and inclusive and follows the rule of law (Ferreira, G., 2011). It ensures that corruption is minimized, the views of minorities are taken into account and that the voices of the most vulnerable in society are heard in decision-making. It is also responsive to the present and future needs of society. Figure 2.2 shows characteristics of good governance.
Figure 2.2: Characteristics of good governance (Ferreira, G. 2011).
2.8. GOVERNANCE TYPES
Types of governance of natural resources can be distinguished on the basis of who holds management authority and responsibility and is expected to be held accountable according to legal, customary or otherwise legitimate rights. In this sense, four broad types have been discussed for the case of protected areas (IUCN, 2004) and can be cautiously extrapolated to refer to natural resources in general. These include governance by the government, joint governance by several concerned parties, private governance, and community governance.
Governance by the government, according to IUCN (2004), is where the overall responsibility and accountability rest with the government ministry or an agency at national, regional or municipal level in which the land and natural resources are subjected to use rules and regulations under the law. Thus, in the case of a system of protected areas, management may be directly exercised or delegated but the government retains full ownership and control. At times, the government is committed to inform or consult other concerned parties prior to making management decisions.
The second form of governance employed in the management of natural resources such as shea trees as identified by IUCN, (2004) is joint governance by several concerned parties. This is a type of governance whereby the authority, responsibility and accountability are shared among a variety of parties, likely to include one or more government agencies, local communities, private landowners and other stakeholders. The parties recognize the legitimacy of their respective entitlements and choose or are required to collaborate. Examples include co-management employed in the management of protected areas and community resources management areas (CREMAS).
The last form of governance that would be discussed in this section is private governance. The final authority and responsibility rest with the landowners, which may exercise it for profit (e.g., tourism businesses) or not for profit (e.g., foundations, universities, conservation NGOs). Usually, the landowners are fully responsible for decision making and their accountability to the society at large is quite limited.
2.9. INSTITUTIONAL ARRANGEMENTS AND PAYMENT FOR ENVIRONMENTAL SERVICES
Payment for environmental services is defined as a voluntary transaction in which a well-defined environmental service (ES), or a land-use likely to secure that service, is being purchased by at least one ES buyer from at least one ES provider if, and only if, the ES provider secures ES provision, i.e. conditionality (Wunder et al., 2005; Pagiola et al., 2007; Engel et al., 2008). FAO (2000) defines PES as an approach to environmental management which uses cash payments or other compensation to encourage ecosystem conservation and restoration. It includes direct payments from ecosystem service beneficiaries to land stewards, as well as indirect payments earned through eco-certification.
Thus, in setting up PES schemes, The Katomba Group (2008) reveal that, the framework requires an assessment of the range of ecosystem services that flow from a particular area, and who they benefit; next an estimation of the economic value of the benefits to different groups of beneficiaries is needed. The final step is the design of a policy, subsidy, or market to capture this value and reward landholders or resource managers for conserving the source of the ecosystem services.
Institutional arrangements on the other hand refer to relationships established among buyers, sellers, and intermediary organizations so as to reduce transaction costs (Tognetti et al., 2003).Thus, Pagiola (2007) recommends that, to develop an effective institutional arrangement that would facilitate payment for environmental services, there is the need to control access, by defining property rights which define rights to particular streams of benefits as well as responsibilities for their provision. Thus, this will determine who has access to particular resources, and whether those who pay the costs of management practices have access to any of the benefits, and therefore have an incentive for conservation.
2.4. Valuation techniques for valuing natural resources
There are four basic approaches to valuing environmental or natural resource goods. These are price-based valuation methods, surrogate market valuation methods, hypothetical market approach, and cost-based approaches (Pagiola, 2010).The ensuing describes each method in detail.
2.4.1 PRICE-BASED VALUATION METHODS
According to Pagiola (2010), these methods are best adopted when formal markets exist for environmental goods and services to be transacted. Using market prices gives an underestimate of the true WTP, since consumer surplus is ignored (Pagiola et al., 2010).
2.4.2. SURROGATE MARKET VALUATION METHODS
Pagiola indicates that, surrogate market valuation techniques are used when there is no formal market to measure an environmental value but there exists information about a related good or service transacted in the marketplace that can be used to infer the value. Techniques where the value can be derived from other markets include the hedonic pricing method (HPM), the travel cost method (TCM) and the change in productivity (CoP) approach.
The TCM estimates how much people value an environmental location by the costs they are willing to incur in travelling to it. It implicitly considers the environment in terms of the provision of recreational services rather than basic ecological goods and services. The fact that people incur costs to visit these sites enables a demand function for the attraction to be established, in which the visitor rate is related to the travel cost. Once this relationship has been established, it is possible to trace out a demand curve by examining the effects of a change in entrance fees on visitor numbers (Pagiola et al., 2010).
The CoP method can be used whenever an environmental service or function acts as an input into the production of marketable goods. For example, the watershed protection functions of forests help control the quantity and quality of water flows. Deforestation can contribute to a reduction in agricultural productivity through soil erosion, sedimentation and flooding. This technique estimates the changes in output as a result of loss of environmental services. However, identifying and measuring the complex ecological linkages can be very difficult, unless data and models exist (Pagiola et al., 2010).
2.4.3. COST-BASED APPROACHES
The most widely applied techniques in this grouping are the preventative/defensive expenditure and replacement costs techniques. The former captures people’s valuation of ecological services by observing their actual expenditures to prevent the loss, or to defend themselves from the consequence of the loss. These cost-based approaches are based on a number of assumptions: that such actions are effective and able to perfectly substitute environmental quality; there is complete information and therefore environmental risks are well perceived and understood and there are no capital constraints. In principle, the costs incurred voluntarily in a free-market situation to mitigate or reverse an environmental impact will be equal to or less than the value of the impact.
2.4.4. CONSTRUCTED OR HYPOTHETICAL MARKET APPROACH
In situations where market values cannot be observed, either directly or indirectly, market-like behaviour can be inferred through surveys or direct questions. The most widely used technique of this type is the contingent valuation method (CVM). By setting up a carefully worded questionnaire, CVM elicits individuals willing to pay (WTP) for an environmental benefit (e.g. to preserve the view of a beautiful landscape, improve air quality), or how much money they would be willing to accept (WTA) for a loss of environmental quality. The aim of CVM is to elicit valuations that are as close as possible to what would be revealed if a market actually existed. To be carried out successfully, CVM requires careful sampling, training of enumerators and long periods of preparation and analysis. Information can be obtained directly from respondents or via a personal interview or mail questionnaire. It is the only technique able to capture non-use environmental values.
Table 2.1: Categories of economic valuation methods
Price-Based Valuation
Market Prices
Shadow Prices
Related or
Substitute Good
For Evaluating
Timber and
Non-wood Products
(food, medicine,
handicrafts)
Fisheries Surrogate Market Valuation
Hedonic Prices
Travel Cost
Change in Productivity
For Evaluating
Environmental Amenities
Recreation and Ecotourism
Regulatory
Ecological and Environmental Functions (flood Control, nutrient cycling, carbon
sink, micro-climate regulator
Constructed
Market Valuation
Contingent
Valuation
Choice Modelling
For Evaluating
Recreation and
Eco-tourism
Ecological and
Environmental
Functions
Protected areas
Cultural and
Religious Values Cost-Based Valuation
Opportunity Cost
Replacement Cost
Relocation Cost
Preventive /Defensive
Expenditure
Dose Response
Function
For Evaluating
Damages to protected
areas
Losses of ecological
and environmental
Functions
Health impacts
Adopted from Pagiola (2010)
2.5. THE THEORETICAL MODEL
The theoretical model for determining willingness to pay for this study was adopted from a model proposed by Carson and Hanemman (2005).The economic value of a non-market good like shea trees to an individual can be measured by determining the magnitude of their WTP for the good. According to Carson and Hanemann, WTP is defined as the amount that must be taken away from a respondents’ income while keeping their utility constant to meet the cost of providing the non-market good (i.e., conserving or planting shea trees).
Most scholars employed the random utility model approach for dichotomous contingent valuation responses to estimate the WTP (Hanemann 1984, Haab and McConnell 2002). Hanemann(1984) rationalized dichotomous CV questions putting them in a framework that allows parameters to be estimated and interpreted. Hanemann, recommended deriving WTP from the indirect utility function. The indirect utility function of respondent ‘j’ can be formulated as follows;
Vij= v(Yj, Qj, M, P)…………………………………………………………(1)
Where, V (.) is the indirect utility function, Yj, is the respondent income, Qjis the current condition of shea trees in the area, M is the socioeconomic characteristics of respondent that might influence their WTP and P is a vector of individual characteristics affecting the trade-off that the individual is prepared to make between income and the non-market good (sustainable shea trees). For the status quo, where there is no effort to conserve or plant shea trees (i=0), the indirect utility function of the respondent is given by:
V0j= V (Yj, Q0, M, P)……………………………………………………….(2)
Letting 0 superscripts denote the initial (status quo) conditions of no effort towards conservation/production of shea trees and 1 superscripts denote the new conditions, (sustainable conservation/production of shae trees) then Q0is the current situation of shea tree and Q1 is newer situations. If the respondent is willing to pay some money C (Cj> 0) for the sustainable conservation/production of shea trees, because of quality and quantity changes (Q1> Q0), the indirect utility function of the respondent is given by:
Vij= V (Yj¬_Cj,Qj, M, P)…………………………………………………………(3)
In a general market equilibrium, we need to consider the amount of income that the respondent will give up to make him/her indifferent between an initial condition (i.e., the current condition of no sustainable conservation/production of shea trees where income is at Cjand good at Q0, and final situation (in this case the sustainable conservation/production of shea trees, where income is at Yj -Cj and good is at Q1).
Economist calls this amount of income, the compensation variation or the WTP (Haab and McConnell, 2002). Therefore, the compensation variation in the sustainable conservation/production of shea trees is given by a mathematical equation below;
Vij= V (Yj, Q0, M, P) =V (Yj¬_Cj, Q1, M, P)
Where v (.) is the indirect utility function, y is the income of respondent, Q0 is the level of goods in the current situations of no sustainable conservation/production of shea trees, Q1 is the level of goods in the sustainable shea conservation/production program (Q0>Q1an increase is desirable), M is the socioeconomic characteristics of respondent that might influence their WTP and P is a vector of individual characteristics affecting the trade-off that the respondent is prepared to make between income and the non-market good (sustainable conservation/production of shea trees). C is the compensation variation that is the WTP amount of the respondent.