How Can NIE Inform Sustainable Livelihoods Analysis and Actions? 2.1.2 NIE and Assets

NIE analysis links in well with the SL emphasis on assets in a number of ways.

First, it emphasises that institutions (the institutional environment and arrangements) are a very important part of social capital. Whereas the institutional environment is an asset that tends to be held more at larger scales of analysis (community, national, or international, for example), access to particular institutional arrangements is an important part of individuals’ social capital, together with a culture of trust between transacting or co-operating parties. The institutional arrangements that people are able to engage in also depend upon and affect their relative power (individually or collectively) and determine their access to and gains from other assets.

Second, NIE emphasises and gives insights into the importance of access to assets. Access to assets, and consequently benefits from them and incentives for their development, depend upon institutional arrangements, and these in turn depend upon the institutional environment, information flows, asset characteristics, and the vulnerability and power of different actors. The physical and economic characteristics of assets should not be examined without reference to the institutional arrangements which constrain or promote their use.

A third insight from NIE concerns the importance of information as a resource. This has implications for the valuation of human and physical capital. Effective information flow and use are important pre-requisites for the development of the institutional environment, and this may require investment in literacy, in communications infrastructure, or in a culture of openness and information sharing.

Finally, NIE analysis can make an important contribution to understanding the value of physical and natural assets. Market valuations are inadequate as they do not take account of transaction costs and risks as well as the transformation costs involved in asset use or production. This goes beyond the simple recognition that, for example, the value of soil conservation is reduced by uncertainty about land tenure, to identify the situations where different types of institutional arrangement may reduce transaction costs and risks, and increase asset values to different users. Thus users of a watershed may not cooperate to maximise benefits from watershed use if they have insufficient knowledge about each other, but collective arrangements facilitating better information about each others’ behaviour and trustworthiness may help to overcome this problem. If, however, the transactions costs of upholding exclusive property rights over a resource are greater than the potential benefits, whatever institutional arrangements are adopted, then ‘open access’ will prevail, with devaluation and often degradation of assets.