How Environmental Conditions Determine the Effect of an Alternative Income Program on Resource Extraction

Alternative incomes have been proposed as an integrated conservation and development strategy that can be used to reduce natural resource extraction while improving or maintaining welfare. The success of alternative income programs; however, depends on both the market and environmental setting. For example, if new labor cannot easily enter the local market, an alternative income should draw labor away from resource extraction. However, if resources cannot be purchased from distant markets, there may be no reduction in resource extraction because higher incomes will create a higher demand for local resources. Most coral reef fisheries exist in places where labor and resources are supplied locally; therefore, empirical data is needed to determine whether the income effect dominates over the labor substitution effect. It is expected that the household natural resource endowment will be predictive of the policy outcome. The Republic of Kiribati, in the Central Pacific, provides a unique natural experiment because a policy to increase price subsidies for copra (a coconut product) has been implemented to reduce fishing pressure and improve welfare. A national-level household survey was conducted to collect retrospective economic data over the period 2001-2006. These data together with large-scale environmental data were analyzed using an instrumental variables approach. Labor in agriculture increased in response to the subsidy and resulted in an increase in labor in fishing. However, when the household land was large relative to the common reef resource, the subsidy drew labor away from fishing and into agriculture. The subsidy, however, did not appear to result in improvements in the fishery or welfare. These results suggest that environmental conditions interact with market conditions to determine the effect of alternative income programs and that implementing alternative income programs without direct limits to resource extraction may actually increase resource extraction.

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