Institutional Evolution of Environmental Management under Global Economic Growth

We shall consider how different institutional forms can affect the management of environmental problems at different stages of economic development, including for managing biological resources and controlling pollution emissions. Problems of different hierarchical levels from local to global will

Key to dealing with different stages of economic development is the environmental Kuznets curve (EKC), the hypothesis that pollution increases at first during development and then declines after industrialization in an inverted U-shaped pattern of pollution emissions against time.1 This term derives from the earlier empirical observation of a tendency for income to first become more unequal and then more equal as societies move through the industrialization process (Kuznets 1955), producing a similar inverted U shape when time is on the horizontal axis and the Gini coefficient (which rises with income inequality) is on the vertical axis. These both suggest that societies may bear temporary costs to develop. However, critics have argued that they may not generally hold, being subject to historical, institutional, geographic, and technological specificities. The socialist world saw increasing income inequality during industrialization, and India and China may leap to more advanced environmental control technologies that limit their pollution as they industrialize, if they can adopt appropriate institutions for implementation and enforcement.

Patterns of Development and Environmental Degradation

Various dynamic patterns of pollution and development relationships occur, varying by pollutant and across societies. The classic EKC pattern has been found to hold for sulfur dioxide (especially damaging to health), nitrogen oxides, suspended aerosol particulates, carbon monoxide (Seiden and Song 1994; Grossman and Kreuger 1995), heavy industrial emissions of arsenic, cadmium, lead, and nickel, and also biochemical oxygen demand and fecal coliform in water (Gawande et al. 2001). Varying "turning points" of income have been found in different studies for specific pollutants. Some have even found that some of these may "re-link" with rising incomes to exhibit "N-curve" patterns, possibly fecal coliform (Shafik 1994) and sulfur dioxide in some countries (de Bruyn and Opschoor 1997).

The EKC pattern can arise due to high income elasticity for environmental quality that leads to political action (Beckerman 1992; Dasgupta et al. 2002). Higher income countries can fund pollution control activities (Magnani 2000) and also R&.D in improved pollution control technologies (Komen et al. 2000).

However, some pollutants vary inversely with income, notably basic water pollutants that affect infant mortality (Dinda 2004). Others seem to increase without limit with national income, notably carbon dioxide, the major ingredient in global warming (Holtz-Eakin and Seiden 1995). Others seeming to increase monotonically include solid municipal waste, traffic volumes, and general energy consumption (Holtz-Eakin and Seiden 1995; Horvath 1997).2

For some such as deforestation there seems to be no relationship between environmental damage and national income across countries or even within countries (Koop and ToIe 1999; Bhattarai and Hemmig 2001). Regarding endangered species, political and institutional factors seem more important than income levels, especially civil liberties (McPherson and Nieswiadomy 2001).

A general criticism is that most of these studies were done on cross-sections of countries rather than on more careful panels or time-series within specific countries, which can seriously alter the results (Stern et al. 1996; Stern and Common 2001). Geographical effects can vary across countries (Ezzati et al. 2001) as can enforcement effects, even within the United States across states (Seiden et al. 1999), reflecting political and cultural factors (Magnani 2000), including corruption (Lopez and Mitra 2000).

Common Property, Open Access, and the Problem of Cooperative Resource Management

H. Scott Gordon (1954) argued that "common property" would lead fisheries to be overexploited in the bioeconomic sense that rents would be dissipated as individual agents generate negative externalities on each other and overharvest the fishery.3 Considering grazing commons during the enclosure movement, Garrett Hardin (1968) declared common property to bring the "tragedy of the commons" endemic to both biological resources such as fish, grazing animals, and forests and nonbiological such as oil pools.

Siegfried Ciriacy-Wantrup and Richard Bishop (1975) clarified that the problem is not common property but open access. If a well-defined group owns the resource and is able to control access to it, the group may be able to establish institutional arrangements to manage the commonly owned resource optimally (Ostrom 1990; Bromley 1991). However, even a privately owned resource will not be managed optimally if its owner cannot control access to it.

Thus in the American plains, although farmers claimed private property ownership of fields, they could not control access to them by the cowboys and their cattle grazing until after the invention of barbed wire (Libecap 1981). Feudal lords in the Middle Ages were often unable to prevent peasants from poaching in their forests. Furthermore, the Soviet Union was able to control access to the state-owned sturgeon fisheries in the Caspian Sea. However, this control of access broke down after the dissolution of the USSR and the subsequent privatizations of these fisheries, with the result that they have seriously collapsed and beluga caviar is now in danger of complete elimination (Rosser and Rosser 2004, 34-35).

Whereas open access involves a situation in which the number of agents can increase indefinitely, thus driving rents to zero, managing common property with controlled access implies a fixed population of agents who must arrive at a mutually satisfactory set of arrangements. Rajiv Sethi and Eswaran Somanathan (1996) analyzed this problem as an evolutionary game-theoretic prisoners' dilemma, the issue being achieving a dynamically stable cooperative solution that is self-enforcing rather than a defecting, each-for-his own solution that can lead to collapse of the common property resource.

Examples of sustained common property cases are more likely within relatively homogeneous groups that are able to communicate well and have been stable over long periods of time. Among fisheries successful examples include the Icelandic cod fisheries (Durrenberger and P?lsson 1987) and the Maine lobster fisheries (Acheson 1988). The list of failed fisheries that have suffered catastrophic declines is long and includes among others blue whales, Antarctic fin whales, Hokkaido herring, Peruvian anchoveta, Southwest African pilchard, North Sea herring, California sardine, Georges Bank herring and cod, and Japanese sardine (Clark 1985, 6).

Sethi and Somanathan (1996, 781-782) have discussed the collapse of the Kumaun and Garhwal forests in Northern India, which had been divided among villages who managed their portions by internally evolved rules of allocation. Between 1911 and 1917 the British took over management to extract logs for railroad construction. Protests by the villagers led the British in 1925 to end restrictions on use and the forests became open access. By 1931 an observer noted that "the oak is melting away in Kumaun like an iceberg on the equator." Daniel Bromley (1991) has documented similar cases in Africa where herds of wildlife well managed under traditional arrangements declined following colonial imposition of higher level controls leading to essentially open access outcomes.

Forestry management becomes more complicated because there are many different outputs from forests beyond timber: grazing, hunting, fishing, recreation, pharmaceuticals, preservation of endangered species, aesthetics, and many more, which can result in multiple optimal equilibria for rotation periods (Swallow et al. 1990) and multiple optimal methods of management (Rosser 2005). These problems are exacerbated in developing economies with indigenous groups living in the forests, leading to potential conflicts over property rights and income distribution (Kant 2000).

Developing Cooperative Institutions

Important in developing cooperative institutions to manage common property resources is trust among those involved. Trust is learned over time through successfully repeated cooperative interactions. Buildup of trust over time has been identified as accumulation of social capital, an idea with many problems of definition and conceptualization.4 In practice many analysts use indexes of "generalized trust" as measures of social capital, which has been associated with economic growth (Fukuyama 1995; Knack and Keefer 1997; Woolcock 1998; Dasgupta 2000; Zak and Knack 2001). However, this may not hold for cases where trust is just within specific groups, what Robert Putnam (2000) has labeled "bonding" social capital in contrast with "bridging" social capital associated with generalized trust. While both involve reducing transactions costs among those involved that can enhance productivity, bonding social capital may involve the narrow group damaging broader productivity through corruption, crime, or other means.

Bonding versus bridging social capital becomes complicated when we are dealing with the management of common property natural resources. This maybe a case where the usually looked-down-upon bonding form within a specific group may be optimal, especially for resources located in particular locales such as the Icelandic cod fishery or the Kumaun forest of Northern India. What may matter is that there be strong relations within the local group, these sufficing to induce the cooperation necessary to manage the resource. For these local groups bonding social capital relations may be strong, inducing an ability to enforce sanctions on defectors who may be unable to conceal their behavior from their neighbors (Svendsen and Svendsen 2004). In the lobster fisheries of Maine, those who do not follow agreed-upon management practices may find their lobster pots damaged, with similar accounts holding for the Icelandic cod fishery.

While good for maintaining cooperative practices, this can make it harder for the practices to survive interaction with outsiders or higher level authorities. Fishing communities are often insular and isolated from their surrounding societies, with the people belonging to distinct ethnic groups or speaking unusual dialects different from those around them, even when technically the same ethnicity (Charles 1988). While this may support their own internally generated cooperative practices, it can lead to problems if outsiders try to impose rules or practices, even those needed. Outsiders can destroy a group's cooperative institutions but may be unable to enforce their rules or substitute anything effective instead. The bonding social capital may remain strong enough for the local group to resist and undermine the rules of the outsiders but may not be strong enough to preserve their own cooperative institutions.

At the higher level of industrial development, the more generalized trust associated with bridging social capital becomes important. In studying Italy, Putnam et al. (1993) observed that in low-social-capital southern Italy there is a nexus of corruption, lack of generalized trust, and a general breakdown of law and order, in contrast with higher-social-capital northern Italy with its more entrenched civic associations and generalized trust (and better overall economic performance). Both the ability to formulate widely acceptable environmental policies and to enforce them would appear to depend strongly upon this more generalized social capital, which is known to be linked with democratic and inclusive structures. This is likely to be true even for such systems as marketable pollution permits.

Social capital and democracy seem linked with other elements in general patterns of social cohesion. Apparently involved in the complex interaction of trust, corruption, and lawlessness is income equality (Uslaner and Badescu 2004; Ahmed et al 2005). Ahmed et al. found in a global data set that there appear to be strong and direct relations between the degree of income equality, levels of generalized trust, a lack of corruption, and the propensity not to participate in the underground economy. Thus, a society's ability to decide upon and enforce environmental regulations at any level of economic development should be easier with greater income equality, generalized trust, and open democratic structures. There may be a link here between the two different Kuznets curves; the increase in equality with higher development may help the implementation of environmental regulatory policies that bring about the improving side of the environmental Kuznets curve (Magnani 2000; Lopez and Mitra 2000).

The level of hierarchy in the ecologic-economic system is also a serious management issue. Forms of pollution that seem to exhibit more the EKC pattern are ones that are more local in their impact rather than global. This may reflect that national level regulation can internalize the relevant externalities. For more global pollutants, such as COz, national level regulation fails to achieve this. A global level pollutant must be regulated globally. But it is harder to obtain national level adherence, just as a higher level of government may have trouble getting a fishing community to go along with its rules. This failure to enforce such global level regulations may be partly why such pollutants have not exhibited the EKC pattern (although SO^sub 2^ has been a matter of controversy and diplomacy across national boundaries).

Problems arise when lower level entities attempt to regulate pollutants or processes transpiring at a higher level of the ecologie-economic hierarchy. There can also be problems when higher level entities attempt to manage pollutants or processes operating at lower levels. Besides the sorts of enforcement problems that can arise in dealing with local communities as in the case of the fisheries, there can be inappropriate controls decided upon. James Wilson et al. (1999) have shown that managing fisheries at too high a scale of hierarchy can lead to overfishing of crucial local stocks. Thus, J. Barkley Rosser, Jr. (1995), has argued that there should be a coordination of property rights and levels of ecologic-economic hierarchies.

Conclusions

The responsiveness of a system to its people wanting to attain high environmental quality depends on the levels of trust and cooperativeness within the society. Many factors are involved in bringing about institutions that reinforce cooperation rather than defecting conduct in regard to environmental and natural resource contexts. Greater social cohesion may be enhanced by greater income equality, the ability to bring corruption under control, and the willingness of citizens to participate in the legal economy and in democratic political processes. One Kuznets curve may help the other.

A final note is that in resolving environmental problems, high income countries might mimic traditional communal management institutions and practices of poorer countries. However, local management of local problems by homogeneous groups is easier than higher level management of higher level problems by heterogeneous groups.