Environmental Engineering Reference
In-Depth Information
exerting state ownership over communally managed resources to maximize
long-term economic rent.
5
However, experience from dif erent parts of the
world indicates that the ei ciency of changing property rights cannot be
guaranteed simply by enacting new legal rules, since the very notion of
property rights is largely embedded in prevailing social customs (informal
institutions) that guide individual behaviour in respect of environmental
resource use. The nature of this transformation in property rights deter-
mines the parameters for the use of scarce resources and assigns incentive
structures and costs to economic actors. Since property rights institutions
range from formal arrangements, including constitutional provisions,
statutes and judicial rulings, to informal conventions and customs regard-
ing the allocation and use of property (Libecap, 1989), transforming
property rights requires complementary changes in social norms. Together
with new formal rules and other constraints, these changes in social norms
redei ne economic opportunity and redraw the rules of the game that
govern the actions of economic actors, including business organizations
and individual entrepreneurs, in their pursuit of economic gain (Wang,
2001). Correspondingly, the new structure of property rights does not
necessarily ensure ei cient utilization of environmental resources until
economic actors adjust their expectation and behaviour in response to
underlying changes in property rights.
Contemporary theoretical debate on property rights changes is broadly
dominated by two schools of thoughts, the 'economic school' and the 'dis-
tribution school' (Coase, 1960; Demsetz, 1967; North 1981; Eggertsson,
1990). The basic theme of economic reasoning in the domain of institu-
tional changes is that the propensity to achieve economic ei ciency in
the allocation of resources is the main force propelling such changes.
Individuals will work to establish new rights or reallocate existing rights
only if the benei ts from doing so exceed the costs (Libecap, 1989). Libecap
further argues that 'capturing a portion of the aggregate gains from miti-
gating common pool losses is a primary motivating force for an individual
to bargain, to install or to modify property rights arrangements' (Libecap,
1989 p. 19). An institution established to achieve such an objective remains
in place as long as it serves the purpose. Whenever the underlying eco-
nomic relations change, the existing institution cannot serve the purpose
ei ciently and so provides the motivation to change the existing worn
out institution. The basic theoretical thrust of the economic school is to
view property rights evolution as a response to changes of relative prices,
either direct or indirect, via the opening of new markets, population
change, technological innovation and so forth (Wang, 2001). Changing
economic conditions create new opportunities that could not be captured
by the existing property rights structure, which is thus under pressure to
