Negotiating the Global Commons: The Design of Economically Efficient International Environmental Institutions

Abstract

"Standard neo-classical theory understates the important role that institutions play in directing economic behavior. Instead of remaining constant, institutions evolve over time. Transaction costs and bounded rationality make it possible for properly structured institutions to increase total social welfare. Economists such as Douglass North have shown that the evolution of institutions responds slowly to normal economic forces. A specific type of collective action is needed to manage commonly owned property. Specifically, the institutional framework of property rights surrounding the resource must succeed in transforming an open access regime threatened by the Tragedy of the Commons, into a common property resource that solves the Assurance Problem. Successful common property resource regimes are likely to share basic structural principles first formulated by Elinor Ostrom. International environmental treaties can be analyzed as common property resources since nations largely act as autonomous agents and there is no international government capable of enforcing agreements. Because international law must rely on voluntary cooperation, the institutional structure surrounding it is at least as important as the substantive environmental goals nations set for themselves. The success or failure of these environmental treaties can be explained by the degree to which their provisions reflect the Ostrom institutional principles. The International Whaling Convention has had only limited success in preserving whale species, largely because its institutional structure is flawed. The Vienna Convention for the Protection of the Ozone Layer and the Montreal Protocol on Substances that Deplete the Ozone Layer have had greater success in restricting the use of chemicals such as chloroflourocarbons, although they are still recent. Efforts to address global warming, beginning with the Framework Convention on Climate Change, present the international community with its greatest challenge. It is possible that large costs will be incurred unless governments are able to overcome their narrow interests and agree on successful common action. Although it is still not clear that costly action would increase net welfare, any future agreement will have to reflect the institutional principles discussed by Elinor Ostrom."