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Chapter 5: How do Institutions Affect 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 contracts1 and property rights plays a crucial role in managing natural resources, affecting the equity and efficiency 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, efficiency and distribution (Nabil and Nugent, 1989). The theoretical framework of NIE has been used in many disciplines, ranging from sociology, anthropology and legal studies to applied fields 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 institution substantially influences 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 maximization 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 studying the supply of institutions. So the institutional analysis has adopted two inter-related approaches: (1) the transaction costs and information costs approach and...
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