Endogeneity and Environmental Policy: How Local Institutions Structure Local Demand

By Tao, Jill L. | International Journal of Economic Development, July-October 2002 | Go to article overview

Endogeneity and Environmental Policy: How Local Institutions Structure Local Demand


Tao, Jill L., International Journal of Economic Development


Abstract

One of the central themes of local government in a federalist system is the concept of nested institutions, where local governments operate within an environment of constrained policy options. Recent work in the field of environmental economics has highlighted the difficulties that arise when trying to assess the public's taste for different policy options when the public's experience is constrained or limited. Local governments in a federalist system thereby offer a unique environment for examining constrained publics and the problems that may arise when dealing with endogenous policy alternatives. This article draws on the recent literature on local institutions and environmental policy to develop a model for explaining local government behavior, and uses a case to illustrate the model's application. I conclude that traditional models of policy analysis may require some translation for realistic application to local governments

Introduction

Evaluating the impact of local government policies within the United States has been a perennial source of innovation and frustration for academics and practitioners alike. Such sentiment is often attributed to the difficulty encountered when searching for appropriate outcome measurements for local governments within the larger state and national policy arenas (Bartik, 1991; Hatry, et al., 1990). Nested institutions and the bundling of services can lead to muddled evaluations of local influence, leaving local policymakers with a limited ability to demonstrate progress towards community improvement goals (Reese and Fasenfest, 1999; Tao and Feiock, 2003).

In these discussions, economic development policy has often been singled out as a policy area that poses unique challenges for local government because of classical and neoclassical assumptions about the behavior of markets in general (Tiebout, 1956; Peterson, 1981). However, recent work examining questions of political economy within a federalist framework has raised the question as to whether other policy areas, such as growth management, land usage and environmental regulation, may be just as prone to such challenges (McCabe, 2000; Clingermayer and Feiock, 2001). This literature focuses on the way in which local policymakers utilize institutional arrangements, such as the creation of special districts or the adoption of "reformed" government structures, such as council-manager systems, to achieve particular policy goals in a wide variety of areas.

One of the consequences of these structural choices, however, is the establishment of institutions that may outlive their progenitors and policy goals by a lengthy period of time. This article will examine two potential outcomes that may result from such institutional choices at the local level: first, the addition of yet another layer of constraints on the actions of local governments to those already present within the difficult issue of "nesting"; and second, and perhaps more importantly, the way in which such choices structure the preferences of local residents for certain types of policy. I will examine these outcomes within the framework of endogenous preferences, or locally rational affection, that develops in both local policymakers and their constituents for certain policy outcomes, and will demonstrate how such a framework might explain decision making behavior at the local level on environmental issues. The consequences of such behavior for environmental outcomes will then be discussed and evaluated.

The Case for Local Environmental Policymaking

Local governments are often considered the first and the last lines of defense in battles against social ills and problems of collective action. This is especially true for environmental problems brought on by urban conditions, where the burden of responsibility for action has long been placed at the local level (Kraft, 2000; Ostrom, Schroeder and Wynn, 1993). …

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