Institutional arrangements for conservation on private land in New Zealand

Journal of Environmental Management (1990) 31, 313-326

Institutional Arrangements for Conservation on Private Land in N e w Zealand Victoria M. Edwards Portsmouth Polytechnic; Department of Land and Construction Management, 1 Cambridge Road, Portsmouth, PO1 2LF, U.K.

and Basil M. H. Sharp University of AucMand, Department of Economics, Private Bag, Auckland, New Zealand Received 21 May 1989

One-third of New Zealand's land is protected as Crown-owned national park or reserve. Large areas of land with high conservation values remain in private ownership. In particular, many rare and valuable types of native forest, especially in lowland and coastal areas, are found only on private land. A framework for analysing the institutional arrangements for protecting conservation values on private land is outlined in terms of costs, benefits and efficiency. The choice of either public or private provision may not provide the flexibility necessary to achieve conservation objectives. Narrowly defined institutions focus on a particular subset of landowners, limiting participation by others. A more flexible and dynamic arrangement could harness the private benefits of protection across a greater diversity of landowners. This should lead to more efficient protection.

Keywords" private land, native forest, conservation, institutions, covenants, efficiency.

1. Introduction Historically, conservation in New Zealand has emphasized the retention and management of areas of Crown land. Approximately one-third of New Zealand's land is protected as Crown~owned national parks and reserves. These areas are concentrated in the mountainous regions of New Zealand, where natural physical restrictions limit land use conflicts. The other two-thirds of New Zealand's land is held in private ownership or is unprotected Crown land. Surveys suggest that a variety of natural habitats has survived on private land (Brumley et al., 1986; Campbell, 1986). In addition, much private land contains modified habitats which may have a high cultural significance. 313 0301~1797/90/080313+ 14 $03.00/0

9 1990AcademicPress Limited

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Conservation on private land in N. Z.

While conservation on private land in New Zealand appears to rely almost entirely on voluntary provision, with the initiative to conserve land coming largely from the private landowner, the provision of perpetual conservation involves co-operation between the landowner and the state. The state provides the institutions for formal protection. This paper examines the effectiveness of existing institutions in achieving conservation on private land. Conservation institutions establish rules and provide incentives that influence the decisions of individuals, organizations and public agencies. The benefits and costs of conservation derive from structures of governance. Institutional rigidities constrain conservation initiatives and reduce the efficiency o f supply of conserved areas. However, the rules governing conservation decisions, especially the organizational structures and incentives, are not immutable. Pressures for change arise from changes in the distribution of individual values attached to the flows of benefits associated with conservation institutions, technological change and economic conditions. The paper has two main sections. A basis for viewing the relationship between institutions and the values attached to conservation is developed first. Indigenous forest land is used to illustrate the significance of institutions in conservation. This does not necessarily exclude other classes of land with conservation values, such as tussock grasslands and wetlands. The framework identifies a fundamental disequilibrium associated with monopoly supply of incentives for conservation. The framework is then applied to the conservation institutions used in New Zealand to protect private land. Outcomes associated with the existing arrangements are identified and suggestions are made for their improvement.

2. Analytical framework Institutions provide opportunities for individuals and groups to act on the values they associate with forest land. Well functioning markets supply useful information on the opportunity cost of alternative land uses. However, free market institutions are unlikely to supply the conservation services associated with forested areas in quantities sufficient to meet aggregate demand. In theory, a public institution imitating the requirements of a Lindahl pricing mechanism will produce an efficient level of conservation (Atkinson and Stiglitz, 1980). In practice, the costs associated with defining property rights and monitoring and enforcing agreements are likely to constrain the evolution of conservation markets with Lindahl properties. However, market failure is not sufficient to justify monopoly supply by the public sector. This section provides a framework for analysing the range of institutional arrangements possible for achieving conservation on private land. 2.1. BENEFITSAND COSTS Information on the value of using a forested area as a source of raw material is provided by markets. Values are also associated with the wildlife habitat, species preservation, recreation and aesthetic services of forested land. The distinction between these values is not often clear, but it is generally acknowledged that preservation benefits can be large relative to development benefits (Boyle and Bishop, 1987). While there is general agreement on the relevance of conservation values to land use policy, there remains a great deal of ambiguity over the relative magnitude of some of the constituent components of total benefits (Fisher and Raucher, 1983). Benefits derived from the

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MB MC

A

MC

C

/

MB T

Ot

-~)~ Forest land (ha)

Figure 1. Market for conservation.

protection of forest land often display the non-excludable qualities of a public good. Such benefits do not require individuals to have a legal interest in the protected land, or to be allowed access to the land. For example, it would be very expensive to identify those individuals deriving existence values from protected land and impossible to exclude them from doing so. Use and non-use values are associated with indigenous forests. The benefits of conservation and the distribution of the benefits a m o n g landowners, users and nonusers, are a function of institutional structure. Landowners could derive private benefits from conserving their native forests. If exclusion is possible, then landowners could charge other beneficiaries and so obtain financial benefit from private ownership. Some conservation benefits, such as opportunities for recreation, are exclusive. The net benefits to landowners of providing opportunities for recreation would be capitalized into the value of the land when exclusion is possible. Figure 1 shows the private marginal use benefits (MBE) of protecting additional units of land where exclusion is possible. The marginal benefits that landowners and free-riding users derive from the protected land is shown as MB U. Finally, non-use conservation values must be added to MB U to obtain marginal use and non-use benefits (MBT). There are three elements of cost involved in the protection of conservation values on private land. First, there is the opportunity cost of foregoing the right to use the land without restriction. This cost is incurred by the private landowner when specific rights, such as the right to harvest, are transferred to another party. Second, there is the cost of negotiating an agreement specifying the rights and duties of parties to the transaction. The third element of cost arises from the need to monitor and enforce the conservation agreement. The governance mechanism used will determine the magnitude of these costs and where the costs of conservation fall over the duration of the agreement. Figure l shows that the marginal cost (MC) of conservation increases with the area protected. Therefore the costs of conservation are also a function of institutional structure. Lower costs can be achieved by reducing any one of the three elements of cost involved. For example, access to a common legal framework might provide the service of formal

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protection for the land at lower cost. Economies are possible in the provision of management and enforcement services. If these economies can be realized, then the MC curve will shift downwards. Rigidity and a narrow range o f institutional alternatives can limit opportunity for reducing the costs o f conservation. 2.2.

EFFICIENT CONSERVATION

Figure 1 shows the market supplying Q~ units of protected land. The optimum quantity is Q2, indicating that net benefits (ABC) are foregone by sole reliance on the market mechanism. This is the maximum possible loss associated with private conservation efforts. The area ABC therefore represents the extent of potential net-benefits; whether these benefits can be realized depends on the approaches used. Difficulties in forming markets to supply conservation services often lead to a call for incentive mechanisms such as subsidies to landowners or direct government supply. To view the problem in terms of a choice involving either public or private provision is to impose a restriction on the range of institutional alternatives for land protection. The temporal dimension in any analysis of conservation institutions is significant. Not only do preferences, technology and incomes change, but so do property owners. A private land owner might be prepared to enter into an agreement with the community that protects the land from logging. This agreement will be reflected in the market value of the land. If, over time, the value o f logging rights exceeds private conservation benefits, then a new owner might have an incentive to renege on the original agreement and capture the rents associated with logging. Monitoring and enforcement is necessary if protection is to be effective over time. Public sector provision alone may not be sufficient to rectify market inadequacies. The efficiency implications of a Lindahl pricing scheme directs attention to the desirability of expanding the set of possible institutional mechanisms for conservation. Figure 2 shows 5 individual demand curves (Di) for land protection. If conservation is a pure public good, the efficient level of conservation is characterized by an equality

MC

MC

O4 D3

Forest land (ha)

Figure 2. Public sector supply of conservation.

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between the marginal cost of supply and the sum of marginal values. The difficulties of achieving the optimum are well known (Atkinson and Stiglitz, 1980). F o r example, a practical alternative might use a media voting rule to decide on the quantity of conserved land (Qg) and hence the tax price (Pg). Under this collective decision making rule, individuals D I and D 2 will be over-supplied, the median voter D 3 will be in equilibrium, and individuals D 4 and D 5 will be under-supplied. The disequilibrium is a direct result of the lack of information necessary to achieve an efficient level of conservation. Weisbrod (1975) suggests that the degree of heterogeneity of a nation (the diversity of income, cultural heritage, and religions), will indicate the extent to which the individuals' demand curves for a collective good will differ. Another source of inefficiency arises from the likelihood that government intervention will be unable to discriminate effectively in the market. A subsidy to landowners is likely to attract only a subset of land owners. The incentive might prove to be compatible and increase the participation of a particular group of landowners, but it might prove to be singularly unsuccessful in increasing the participation of others. Moreover, the information content of this approach is limited. For example, little information is generated on the opportunity cost of using the subsidy money to encourage participation beyond a narrowly defined set of landowners. This result follows from the observation that the private benefits of conservation are a function of the specific institutional arrangement. A variety of approaches, beyond the private-public dichotomy, can foster aggregate participation in conserving land and improve the quality of information on opportunity costs. There should, therefore, be an opportunity for innovative approaches to evolve. Returning to Figure 2, there is an incentive for individuals, whose valuation at the margin does not equal the tax price, to seek alternatives to the existing arrangement. Individuals 4 and 5 may want to form a voluntary organization to provide the protected land at a level that suits their needs. Whether they have an opportunity to form alternative organizations will depend on existing institutional arrangements. It might be possible to form a substitute organization, but it may not be possible to avoid paying the taxes used to fund public conservation. To the extent that there are net benefits to be gained, voluntary organizations will supplement public sector provision and provide an alternative in the form of private sector substitutes. Voluntary organizations would still incur the problem of free-riders and the costs of administration. The limit to this process is reached when the costs of forming a voluntary organization exceed the benefits. There are limits to both market and government arrangements in the provision of protected land. Better institutional design may result in less need for public funding either because more financial resources are obtained from the private sector or the same level of supply can be provided at a lower cost if the private interest in protection can be effectively harnessed (Schultze, 1977). Flexibility is also suggested as an important criteria. Given the opportunity, innovative approaches are likely to emerge from the disequilibria associated with institutional rigidities. 3. Conservation on private land in New Zealand

Since 1977, state protection of conservation values on private land in New Zealand has relied on statutory covenants. The introduction of statutory covenants presented owners with the opportunity to protect private land without donating it to the Crown or a local authority for reserve purposes. A covenant is a contract between a landowner and some other individual or group, by which restrictions are placed over the future use of the

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land, thus protecting the land's qualities. The effect of the covenant is for the landowner to vest an interest in the land in a second party. A covenant is exclusive and unique to the land to which it is attached. Restrictive covenants can be created at c o m m o n law to protect an area of land for a fixed period of time, or in perpetuity, by specifying a number of activities which must not be carried out by the owner or occupier of the land. However, restrictive covenants, which were not developed as a means of conserving natural features on land, but rather as a means of retaining some lesser interest in land for the benefit of the landowner, are limited in their practical use by the c o m m o n law and equity rules which govern them. Restrictive covenants require the presence of a second piece of land to benefit from the restrictions imposed by the covenant and may only be enforceable by successors in title if it can be proved that the restrictions continue to benefit that land. For example, the owner of land A, wishing to protect land B from deforestation, might enter into a covenant with the landowner to the effect that land A benefits from the agreed restriction on the logging of trees on land B. The covenant will only be enforceable to successors in title to the land if it can be proved that land A continues to enjoy benefits from the restrictions imposed on land B. Enforcement of the covenant is in the hands of the owner of land A. Should landowner A have no interest in protecting the forest on land B, then the covenant m a y be breached with no consequence. Equally so, if the owner of the servient land B obtains title, by purchase or otherwise, to the dominant land A, then the covenant is automatically extinguished by operation of law (Hinde et al., 1979). Consequently, while it is possible to use restrictive covenants at c o m m o n law to conserve forest land, the transaction costs and the uncertainties associated with future protection are a serious shortcoming and may act as a disincentive to protect private land. 3.1.

STATUTORY COVENANTS

A statutory covenant is an agreement between a private landowner and an agent of the state. The owner continues to manage the land in accordance with the conditions of the covenant, and the administrating body becomes an overseer to enforce the covenant for its term. Accordingly, it is a similar mechanism to a c o m m o n law covenant, but is derived from statute as opposed to the c o m m o n law. Statutory covenants are provided under three separate pieces of legislation: Reserves Act 1977, Queen Elizabeth the Second (QE II) National Trust Act 1977 and the Conservation Act 1987. All statutory covenants exhibit characteristics distinguishing them from restrictive covenants at c o m m o n law. They m a y exist in perpetuity or for a specified period of time, do not require the presence of any other piece of land to benefit from the covenant and can pass to any successors in title to the land. A statutory covenant granted in perpetuity affords permanent protection by binding all present and future owners of the land. The landowner who enters into a covenant can use the relevant land, subject to the restrictions imposed, and can sell or otherwise dispose of the land. However, the covenant is registered on the land's title, and when the land changes ownership it remains subject to the conditions of the covenant. The covenanting organization, which is the recipient of the covenant and a representative body of the state, has the responsibility to ensure that the present and future owners of the land abide by the conditions of the covenant. The covenanting organization may impose a fine for breach of the covenant and may sue the landowner.

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The result in establishing statutory covenants has been to imitate c o m m o n law covenants, but replace the individual covenantee landow net with an agent of the Crown: the property rights held by the covenantee at c o m m o n law are, in the case of statutory covenants, held by an agent of the Crown. The right to alienate the interest has been further restricted by removing the decision to protect from the private to the public domain. This reallocation, and respecification, of property rights in conservation provides some opportunity for transaction cost economies. By virtue of their links with restrictive covenants at c o m m o n law, statutory covenants are essentially one-off agreements, not readily allowing for continual, but limited use of the land. The covenants are not dynamic in operation. In the case of the covenants negotiated under the Q E II National Trust Act, members of the Board of Directors of the Trust can amend statutory covenants, but the approval of the Minister of Conservation must be obtained for complete revocation. Under the Reserves Act 1977 and the Conservation Act 1987, the Minister of Conservation holds power of revocation, but may delegate such powers to officials of the Department. 3.2. THE COVENANTINGORGANIZATIONS In addition to providing a mechanism which afforded effective protection of land for a fixed period o f time or in perpetuity, government established the Q E II National Trust as the principal covenanting organization and granted covenanting powers to other government bodies. Any landowner, or Crown leaseholder, wishing to preserve a natural area, and not wanting to sell or donate that area of land to the Crown or local authority for reserve purposes, may apply for a statutory covenant by virtue o f one o f the Acts of Parliament listed in Table 1. Conservation covenants, established by the Reserves Act 1977 and the Conservation Act 1987, are administered by the D e p a r t m e n t of Conservation, local authorities or any other approved body. Open space covenants, established by the QE II National Trust Act 1977, are administered by the Trust. Once the covenant is entered into, one of these agents of the state becomes the legal beneficiary of the covenant and is entrusted with the responsibility of enforcing its conditions. Table 1 shows that the QE II National Trust is the principal administrator of statutory covenants for protecting land. The dominance of the Trust in the provision o f covenants can be traced to the inception of statutory covenants. A proposal to government from Federated Farmers Inc. to establish a "Heritage Trust New Zealand" introduced the concept of statutory covenants. Further submissions from government departments were modified to form the statutory functions of the Trust which are " . . . to

TAnLE 1. Statutory covenanting Covenants 1983 Statute Reserves Act 1977 and Conservation Act 1987 QE II National Trust Act 1977

1989 Number

Area (ha)

Number

Area (ha)

43

3008

< 50

n.a.

112

4772

710

60 065

Source: Department of Lands and Survey, t983; QE II National Trust, 1989. n.a., not available.

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Conservation on private land in N. Z.

encourage and promote for the benefit and enjoyment of the present and future generations of the people of New Zealand, the provision, protection, preservation and enhancement of open space." (QE II National Trust Act 1977, s.20(2)). The provision of statutory covenants is merely one of the 10 functions of the Trust. However, during its 11 years of operation, the Trust has adopted covenanting as its primary function. With covenanting as its major role the Trust avoids involvement in the politics of conservation and ensures its continued support by both the government and the landowners it serves. Through their support of the Trust, Federated Farmers pursued their original intention of establishing a trust which would provide a service to farmers who wanted their land protected (Clendon, 1988). Although the Trust was established as an independent organization, at least 80% of its annual income is derived from government grants. In addition, the chairperson and six directors are appointed by the Minister of Conservation, after consultation with the New Zealand Maori Council (1), Federated Farmers (2) and the Local Authorities Association (1). Two further directors are elected by members of the Trust. Membership fees range from $22 for annual to $550 for life membership. The Trust has approximately 1000 members which indicates a small and possibly non-representative section of society. Members do not participate in the selection of land for covenanting. The total amount of land covenanted by the Trust is largely determined by the resources available from its annual income of around $900 000. About 70% of the applications for covenants have been approved (QE II National Trust, 1989). 3.3.

THE DISTRIBUTION OF COSTS AND BENEFITS

For any given organizational structure, the additional cost to society of protecting land through a statutory covenant will be the amount over and above that which the landowner is willing to pay. Thus, in Figure 1, if society wishes to protect land of Q2, it must decrease the costs of protection and, or, increase the private benefits (MBz). There are three elements of cost involved in the protection o f conservation values on private land through the use of statutory covenants. First, there is the opportunity cost of forgoing the right to use the land without restriction. This cost is incurred by the private landowner when conditions imposed by the covenant, such as the right to log trees, are transferred to the covenanting organization. While owners are not normally paid a sum of money, by way of compensation for the restrictions imposed, they can expect a reduction in the rates they normally pay on their land and, in the case of Crown leases, both the Reserves Act 1977 and the QE II National Trust Act 1977 make provision for the covenanting organization to apply for a reduction in rent on the landowner's behalf. Second, there is the initial cost of setting up the covenant and the costs of maintenance. The Trust arranges to survey the protected area at no cost to the owner, and to undertake registration of the covenant on the land's title. The Trust also offers financial assistance of up to 50% o f the cost of erecting and maintaining the fencing of an area. If the owner agrees to allow public access to the land, the Trust provides public facilities, and accepts responsibility for any damage. The third element of cost arises from the need to monitor and enforce the covenant. A statutory covenant can increase the landowner's private benefits of protecting land, by providing a mechanism which will ensure the protection of the land beyond the landowner's own lifetime. Landowners gain benefits from a sense o f stewardship and fulfilment of a genuine desire to safeguard their personal values. While such benefits are virtually impossible to measure, their presence has often been cited as being important to

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the successful negotiation of covenants (Department of Conservation, 1988). In addition, private land covenanted in perpetuity is protected from designation as public open space and recreational reserve in district planning schemes and, by virtue of some district schemes, may enable the owner to obtain permission to subdivide adjacent land for residential development. 4. The institutional arrangement of statutory covenants

If the objective of establishing statutory covenants is to assist private landowners in achieving protection of private land, the very fact that the Trust has managed to enter into a total of 710 covenants in its first l 1 years of operation might suggest that the institution is working well. Indeed, for some years, the Trust has had a continuous backlog of applications. However, closer analysis suggests that the supply of statutory covenants is concentrated in a particular sector of the landowning community. O f the 718 covenant applications received by September 1987, only 13 were on land in Maori ownership (QE II National Trust, 1986). In addition, the covenantors were all individual owners; no covenant applications had been made by land-owning corporations, although areas of land held by corporations may have special features with important conservation values attached. Application of the framework developed above would suggest that if statutory covenants are being used only by a small sector of the landowning community, then the remaining sectors fail to be attracted to the covenanting programme because landowners perceive that they will not benefit. This section examines how statutory covenants might produce this result. A number of changes are suggested which might encourage wider participation and improve the efficiency of covenants as a means of protecting private land. There are three major features of statutory covenants which may sustain their concentration in one market: the inflexibility of covenants over time and place, the organizational characteristics of the covenant supplier and the fixed incentive structures. 4.1.

THE INFLEXIBILITY OF STATUTORY COVENANTS

While the objective of protecting land demands a degree of certainty, with a mechanism such as covenants preventing future landowners from altering the existing state of the land, the rigid structure of statutory covenants may act as a barrier to certain individuals. There may be some landowners who would like to protect their land in perpetuity, but cannot abide by a complete non-use management approach to the land. A more flexible covenant would allow certain activities, which are compatible with protection of the land, to be undertaken. For example, traditional Maori use of the land, and in particular the forest, may be consistent with the objectives of conservation. As well as its traditional spiritual significance, the forest remains an important food source and is still used as a source of medicinal plants and weaving and carving materials. The ability to specify conditions within a covenant that meet cultural needs and commercial objectives will encourage participation from both Maori and corporate landowners. Income could still be derived from the forest, with the revised management plan changing only the flow of that income. Certain cultivation practices might be required, which will enhance the conservation value of the land. In such a way, the covenant could be tailored to suit the unique quality of the land and the unique requirements of the owner and the organization protecting that land. Another way o f broadening the base of covenantors would be to make covenants

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more dynamic by allowing adjustments in the conditions over time. This would allow revision of uses according to the landowners' and the agency's changing requirements, and the land's changing ecology. The ability to change the landowner's obligations on covenanted properties might be of particular value to the covenanting organization. Covenanting organizations have limited resources. When they perceive that their resources might be better used elsewhere, the covenanting organizations should be able to reconsider their financial obligations. The Trust is experimenting with more flexible covenants in the High Country of the South Island. Initially, a restrictive covenant is drawn up, which protects the land in perpetuity by restricting the activities which may be carried out on the land. Then, a separate management agreement is made with the landowner, and each subsequent landowner, which grants variations to the covenant. By first using the restrictive nature of the covenant, the Trust is ensuring the continued protection of the land before allowing concessions (Clendon, 1988). 4.2.

ORGANIZATIONAL RESTRICTIONS

The nature of the organizations offering protection of private land through covenants affects the choices available to individual landowners who may wish to protect their land, and so will affect the landowner's decision on whether to covenant. A bias in the availability of covenanting organizations can lead to a disproportionate supply of covenants to those landowners with the same social and cultural characteristics as the existing organizations. Table 1 shows that the Trust is the principle covenanting organization and, as expected, there is a concentration of supply of covenants to nonMaori, farming, landowners with freehold title. The absence of any alternative organization with which landowners may choose to covenant land acts as a barrier to the protection of private land in New Zealand, by failing to increase the benefits of protecting private land for the variety of landowners present. Some landowners may not be prepared to deal with a government department, or, if they perceive that the organization has a different cultural and social value base from their own, they may object to the organization being registered as the trustee of the covenant on the title of their land. In such cases, the private costs of protecting land are increased by the statutory covenant and its need to involve an unsympathetic organization in the management of the property. Maori landowners in particular are reluctant to deal with government agencies (Dangerfield, 1987; Sahnon, 1987). It appears that the institutional orientation of existing covenanting organizations is further removed from Maori culture than from corporate objectives. To be successful in covenanting Maori land, an organization may need to be under the control of the Maori people. Tribal organizations may be better suited to act as the covenanting agents with Te ariki o te iwi (respected tribal elders) being appointed or elected to act as kaitiaki (trustees) of such covenants. Kaitiaki have an important role to play in Maori culture; it is their responsibility to pass the land on to their successors in a way which preserves the Mauri (life force), and provides other necessities, such as a home, identity, security and livelihood. Expanding the range of organizations might also allow for a decentralized approach to covenanting with greater local participation. Local covenanting organizations, or local branches of such organizations, would enable those individuals who find the government's provision insufficient, to directly enhance provision of protected private land. Government subsidization of the covenanting process, could then take the form of

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competitive tendering for grants by the separate organizations~ From the standpoint of allocative efficiency the magnitude o f the subsidy ought to depend on the magnitude o f external benefits generated by individuals' private decisions to purchase (Weisbrod, 1975). Whatever organizations are used to diversify participation in covenanting, it is important to have a perpetual institution, such as a trust, to oversee and enforce the covenant. In order to ensure continuity, certain rights, such as alienation, could be vested in a national organization. The Trust is one such organization. In order for the covenants to be enforceable, it would be necessary to ensure that either perpetual organizations or trusts were granted the power of covenanting, or that there was some reversionary clause in the legislation or covenant itself, authorizing some perpetual body to act as covenantee in the event of demise of the original covenanting organization. 4.3.

FIXED INCENTIVES

The existing covenanting programme can reduce the private costs of protecting land by contributing to the initial and ongoing maintenance costs of covenanting and by increasing the private benefits of protection, such as the planning permission to develop adjacent land. However, incentives used to augment the use of statutory covenants are set as a general policy and in some cases the incentive package proves insufficient to encourage covenanting. While there appear to be a large range of incentives available to landowners who covenant land, it is possible that the nature o f the incentives available may result in increased benefits from covenanting for only a specific sector of the landowning community. For example, while fencing may be important to a landowner who wishes to keep stock out of a remnant of native bush, assistance with fencing will not be as beneficial to the owner of a larger area of forest. Equally so, permission for subdivision of an area for residential development by covenanting an adjacent area of land is an incentive specific to those with larger landholdings which are in areas zoned for development. Thus, there may be cases where individual demand for protection of private land is high, but the resultant demand for covenants is low. The main objective o f corporations is to achieve a commercial return on capital invested and land management practices must be consistent with this objective. Apart from direct financial compensation, the most important incentive for a corporation is likely to be the publicity secured from the covenant. Since corporate image is an important variable in enhancing sales of the corporation's product or services, publicity from protection of public conservation values can be of great financial benefit. Surveys of corporate involvement in public goods programmes suggest that a corporation's contribution to conservation increases in accordance with the size of its advertising budget and its cost of meeting environmental regulations (Griffith and Knoeber, 1986). In order to encourage covenants on corporate land, covenanting organizations would need to develop a public profile which would be compatible with the corporation's public image, and to offer publicity for the land protected. Over 50% of private native forest is in Maori ownership. Such forests are mostly in lowland areas of the North Island and are held in large blocks of up to 5000 ha. The blocks are normally completely forested with no other productive land being held. Owners have been approached by forestry corporations, offering to provide income by leasing the land, clearing it and replanting with exotic, fast-growing conifers (Wright and Lees, 1987). While the majority of Maori and corporate land provides the primary source of income to its owners, incentives must be targeted towards allowing some

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income to be derived from the land. Direct expenditure--grants, loans, purchase of property rights--would allow a covenanting organization to target areas which need conserving. Direct expenditure is flexible, and enables the organization to allocate money toward conserving land of higher conservation value. It is also equitable, to the extent that landowners receive an amount of assistance which is related to the land conserved, and not to the landowner's income level, as is often the case with indirect expenditure such as tax concessions. At present inefficiencies may arise when landowners, who would have carried out conservation work regardless, are nevertheless subsidized. A set incentive structure does not allow the covenanting organization to apply different incentives to different landowners, according to the conservation quality of the land and the landowner's willingness or ability to contribute to the maintenance of that quality. 4.4. MARKETNICHE The existing institutional arrangement, characterized by inflexibility, organizational restrictions and a fixed incentive structure, suggest that it will occupy a particular niche in the total market for conservation on private land. This narrow focus provides limited information on opportunity costs but enhances the organization's effectiveness. Funds directed from central government to a restricted number of organizations means that the opportunity cost of providing covenants is not known. The government cannot know whether it could have used these financial resources to protect a greater area of land, or land of a higher conservation value, elsewhere. As a consequence of the narrow focus of supply, there is a possibility that landowners receiving covenants, and the flow of benefits derived from them, are currently enjoying an economic rent. Society, through the main covenanting organization, is presently providing the covenanting service free of charge to landowners, and augmenting its use by supplying a number of additional benefits. With the cost of the covenanting service set at this subsidized level, there may be a net benefit arising from the difference between the value of the covenant to the landowner and the total private cost of covenanting. The difference is an economic rent. The availability of such net benefits to certain landowners inevitably creates demand the Trust cannot meet. As a result, the number of applications for covenants made, and selected by the Directors of the Trust, exceeds the amount which the fixed resources of the Trust enable it to process and register. Once institutional arrangements providing such economic rents exist, a number of factors combine to ensure their continued existence. Concentrated private benefits related to covenanting are afforded by costs which are hidden, and dispersed throughout society. Policies with this particular distribution of costs and benefits usually enjoy support, with little opposition; particularly if the issues involved can be expressed to society in ethical or moral terms (Wilson, 1973). Typically, available rents are captured by those with the resources necessary to ensure their control. Once economic rents have been created, successful rent-seekers can afford to spend a portion of their rents to safeguard, and increase their share. Over time, the mechanisms may become well established and difficult to shift. Organizations in command of directing a service for which there is excess demand are in a position of relative power. The covenanting organizations will defend the status quo and resist any change that may alter their existence, or even their budget. This does not mean that an organization such as the Trust has abandoned its role as a provider of conservation protection in New Zealand. Since the Trust is constantly receiving signals

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from its narrow market place that its services are in great demand, it responds with attempts to increase supply. 5. C o n c l u s i o n

The framework developed in this paper suggests that conservation values on private land may display the non-exclusive qualities commonly associated with public goods. As such, information problems, transaction costs and the problem of free-riders suggests that state involvement in the protection of private land is justified. However, the inability of one organization to achieve the requirements of a Lindahl pricing mechanism will inevitably leave individuals dissatisfied if it acts as a monopoly supplier in the conservation market. In New Zealand, the state intervened in the private conservation market in 1977 by providing statutory covenants. The state also established the main covenanting organization, the QE II National Trust, and has funded its activities throughout its 11 years of operation. Analysis suggests that this institutional orientation of statutory covenants may restrict their effectiveness in protecting a variety of conservation values on private land. Very few covenants have been registered with Crown leaseholders, Maori and corporate landowners. Two particular aspects of statutory covenants may hinder their widespread use. First, the cultural and political background of the main coventing organization may be inappropriate to the demands of all landowners. Second, the nature of the covenants and the incentives offered may prove too rigid to be effectively applied to a wide range of landowners and land uses. At present, the specific nature of the institutional arrangements increases the net benefit of protecting land for a certain sector of the landowning community. As a result of the low private costs and high private benefits of covenanting, an excess demand for covenants exists from this small sector of landowners. Consequently, statutory covenants have been completed on specific types of land with specific owners. By concentrating on this narrow market, the main covenanting organization has little information regarding the opportunity cost of supplying covenants. While certain individuals may be dissatisfied with the supply of conservation from statutory covenants, the particular rigid arrangement of the institution restricts the evolution of alternative sources of supply. The arrangement does not allow for innovation in the structure of covenanting organizations, the conditions of covenants or the incentives offered to landowners. A more flexible approach to conservation on private land is required. While the objective of protecting land demands certainty, absolute inflexibility is a crude instrument. Certainty demanded from protection of conservation values on private land might be afforded by the presence of a perpetual institution such as statutory covenanting. However, while state intervention is necessary at the institutional level, the organizational and operational arrangement of that institution must allow covenants to operate in a flexible and dynamic market. The state can encourage innovation by creating opportunities for the evolution of alternative organizations in the conservation market. A diverse range of covenanting organizations would accommodate different cultural and value bases. Subsequently, the ability of organizations to negotiate the term, conditions and price of each covenant, and to revise each component over time, would result in greater information on the cost of protection and more efficient use of the private benefits of protection. Restrictions on the arrangements of statutory covenants at the organizational and operational levels should be kept to a minimum.

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Conservation on private land in N. Z.

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