Environmental Engineering Reference
In-Depth Information
local management institutions and their impact on successful management
of common property resources at the local level. The analytical approach
of this chapter builds on insights from 'new institutionalism' and theoreti-
cal and empirical literature from new institutional economics that under-
score the role of formal and informal institutions for a solution to the CPR
problem. Institutions are humanly devised constraints that shape human
interaction and that ultimately af ect the performance of the economy
by their ef ects on the costs of exchange (North, 1990). Institutions serve
a number of important economic functions like facilitating market and
non-market transactions, coordinating the formation of expectation,
encouraging cooperation and reducing transaction costs. From the eco-
nomic perspective, it became clear that the problem of environmental deg-
radation is to get the institution right. The underlying causes of resource
degradation are found in those problems that systematically result in
institutional failures. Since the basic theme of economic reasoning in the
domain of institutional changes is to achieve equity and economic ei -
ciency in the allocation of resources, an institution established to achieve
such objectives remains in place as long as it serves the purpose. Whenever
the underlying economic relations change, new institutions will emerge
in response to underlying economic circumstances of the community.
However, North (1990) pointed out that not all institutions are ei cient
and even inei cient institutions can persist for a long time. Institutions
do not always decrease transaction costs but might actually, when they
are inei cient, increase transaction costs (Olsson, 1999). Because transac-
tion costs are a function of the chosen governance structure and physical
characteristics of the resource, designing the governance structure depends
on the attributes of transaction, that is, asset specii city, uncertainty and
frequency of transaction associated with making various management
decisions. Because of the public nature of environmental goods, public
relevance also needs to be taken into account while selecting particular
types of management regime.
The chapter has analysed dif erent resource management regimes and
addressed appropriate governance structures for environmental resource
management from institutional perspectives. I revisited and analysed open
access and common property resource systems and associated transaction
costs. It is shown that open access exploitation results from the absence of
well- dei ned property rights. Access to the resource system is unregulated
and is free and open to everyone interested in resource appropriation and
exploitation. Rent is completely dissipated at open access equilibrium.
In another words, zero average net revenue characterizes the equilibrium
of an open access regime. There is over-use resulting from resource users
ignoring the ef ects of their consumption on the costs faced by other users.
