Environmental Engineering Reference
In-Depth Information
5.
How do institutions af ect the
management of environmental resources?
Bhim Adhikari
Introduction
In recent years, institutions and institutional arrangements have become
central in the study of the success or failure of environmental resource
management. The enforcement of institutions such as contracts
1
and prop-
erty rights plays a crucial role in managing natural resources, af ecting the
equity and ei ciency of resource management regimes. The centrality of
contracts and property rights in understanding the diversity of institutional
arrangements began in the research programme initiated by Coase (1937,
1960) and implemented by new institutional economics (NIE), and is now
widespread throughout the economics literature (Menard, 2000). NIE
focuses on explaining the determinants of institutions and their evolution
over time and evaluates their impact on economic performance, ei ciency
and distribution (Nabil and Nugent, 1989). The theoretical framework of
NIE has been used in many disciplines, ranging from sociology, anthro-
pology and legal studies to applied i elds such as policy analysis, planning
and organizational development. It is recognized that 'institutions matter'
and that the associated incentive structure in a particular form of institu-
tion substantially inl uences economic performance (Bardhan, 1999).
NIE provides a coherent theory of how contracts and collective action
can be seen as the logical outcome of rational individuals' utility maximi-
zation and how institutional changes alter the pattern of individual choice
and incentive directions. Lin and Nugent (1995) divide NIE into two
broad categories, one studying the demand for institutions and one study-
ing the supply of institutions. So the institutional analysis has adopted two
inter-related approaches: (1) the transaction costs and information costs
approach and (2) the collective action approach (Nabil and Nugent, 1989).
The former is concerned with the role of transaction costs in economic
organizations. The general hypothesis is that institutions are transaction-
cost-minimizing arrangements, which may change and evolve with changes
in the nature and sources of transaction costs and the means for minimiz-
ing them. The transaction costs approach is thus suitable for analysing
the functional role of common property institutions (that is, demand for
institutions). A second theme is the collective action approach, which
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