Edited by Ariel Dinar and Kurt Schwabe
Chapter 2: Institutions and water
Water is a unique resource and so, too, are the institutions that surround its use. Institutions, it is said, are the ‘rules of the game’, the humanly devised mechanisms that constrain, guide and shape human choices, opportunities and interactions. Institutions provide a structure to human motives and behavior, whether in political, social or economic realms of life (see North, 1990; Bromley, 1989). Broadly interpreted, these intangible tools that define and limit the set of choices for individuals in society include any and all rules – both formal and informal institutions – that influence behavior. This classification thus includes the US Constitution, property rights, regulations and common law, as well as social conventions, codes of conduct, norms and moral rules. We can see from this list that some institutions are created through deliberative processes by governments or other organizations but, in many other cases, institutions simply evolve over time, as with ethical standards and common law. The study of institutions has a long history in economics; they are recognized for their role in making the world around us more predictable. The literature has classical origins in property rights theory, but has expanded since then under the label of ‘new institutional economics’, which includes theories emphasizing the role of transaction costs, and other strands of literature focused on the nature of collective action, the role of effective enforcement mechanisms, the process of institutional change, and the relationship between institutions and organizations.
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