Performance Indicators for Natural Resource and Environmental Policy: Contributions from American Institutional Law and Economics

Mercuro, Nicholas, Kaplowitz, Michael D., Duke Environmental Law & Policy Forum

I. INTRODUCTION

Over the last four decades, a variety of legal movements and theories have evolved to make the study of law less autonomous and more open.(1) These several academic movements advocate different jurisprudential discourses and understandings of modern law, and have impacted public policy in different ways and magnitudes. Each movement writes and thinks about law and public policy differently; each maintains a different conception of the role of the State. Among the more dominant of these movements are the several schools of thought comprising Law & Economics.(2) Law & Economics has developed from a small and rather esoteric branch of research within both economics and legal studies to what is now a substantial movement that has helped redefine the study of law and help fashion public policy.

Law & Economics is not a homogeneous movement, but instead is composed of several traditions, sometimes competing and sometimes complementary. As Figure 1 illustrates, it includes: Chicago Law and Economics, Public Choice Theory, American Institutional Law and Economics, Neoinstitutional Law and Economics, the New Haven School, and Modern Civic Republicanism.(3)

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The purpose of this article is twofold. The first is to set forth a comparative institutional approach for analyzing natural resource and environmental policy. Such an approach is consistent with the ideas and ideals that emanate from both institutional economics and American Institutional Law and Economics.(4) The second is to suggest six performance indicators for use in assessing institutional alternatives and for informing choice with respect to natural resource and environmental policy.

However admirable it may seem to argue for maintaining the quality of the environment or for displaying concern over the dissipation of a nation's natural resources, few areas of public policy have produced conflicts of such a heightened magnitude within nations as well as between nations. One mechanism for channeling environmental conflicts and for informing choice is the use of what is termed here as a comparative institutional approach to public policy.(5) Within this approach, society is perceived as a cooperative venture for mutual advantage where and when an identity of interests exists among actors. At the same time, society is an arena of conflict where there exists a mutual interdependence of incompatible claims or interests. The manner in which a society structures its political/legal institutions helps shape the character of life in that society. Thus, society structures its institutions in order to: i) enhance the scope of its cooperative natural resource and environmental endeavors, ii) channel internal natural resource and environmental conflicts toward resolution, and iii) institutionalize mechanisms for changing existing law and policy.

It is important to understand the role of individuals in a comparative institutional approach to public policy. They are assumed to take actions both individually and collectively. It is posited that individual actions are taken to advance individual interests or to advance individual or group perceptions of the public interest. The manifestation of one political/legal institution or structure of rights in a society over another in response to the natural resource and environmental issues confronting it--and the legitimacy of that institution or rights regime--can be interpreted, in part, as an expression (at the most fundamental level) of those who prevailed in the choice-making processes.

II. COMPARATIVE INSTITUTIONAL APPROACH TO ENVIRONMENTAL POLICY(6)

A. Stages of Choice

The selection or establishment of a specific set of institutions, and thus the character of life in a society, is the product of choice. What the field of American Institutional Law and Economics has to say about some of these matters is pertinent to a wide array of issues.(7) However, the purpose here is to focus on natural resource and environmental issues and related public policy. Within the comparative institutional approach, attention is focused on three different stages of choice. First, it is necessary to describe and understand the emergence of the most basic social contract that binds people together. This can be termed the constitutional stage of choice. Second, it is necessary to describe and understand both the structuring and the revising (or restructuring) of political/legal institutional decision-making processes--the so-called institutional stage of choice. Finally, the consequent economic impacts of the legal relations governing society must be analyzed and understood--the economic impact stage of choice (see Figure 2).

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1. Constitutional Stage of Choice

In order to understand the nature of the choices necessary at the constitutional stage, it is useful to start off thinking about a society in a conceptual state of anarchy. In such a state, individuals will contemplate the opportunity costs associated with the protective-defensive resource diversions that are necessary and essential for life under a system of anarchy.(8) Once they recognize the potential prospects for improvement in the character of their economic life that would become possible by establishing a social contract or constitution, they will enter into some form of social contract or will formally adopt a constitution. In establishing their constitution, the individuals will seek to spell out the behavioral limits of what is and what is not mutually acceptable conduct and to lay out the so-called rules for making rules. For instance, with respect to a nation's constitution, there is the issue of whether environmental protection is considered a fundamental right retained by the individual, thereby enjoying a protected status, or whether environmental protection is a mere goal or general statement of public policy.(9)

It must be noted that while the established constitution is typically thought to have only a subtle effect on the allocation and distribution of resources--particularly with respect to natural resource and environmental policy--that subtle impact cannot be ignored. Constitutions are not immutable: the methods by which constitutional rules can be revised are developed at this level of choice. The relationships among emergent institutions are partially resolved at the constitutional stage of choice. Which institutions finally prevail over others in making policy must be decided at this stage of choice, e.g, the decision to provide a system of checks and balances in the court's review of natural resource and environmental regulations or procedures.

The essential point to be understood is that whatever branches of government and institutions come to characterize a society, they owe their development, existence, and legitimacy to the initial choices made at the constitutional stage. Once the constitution is framed, it will then provide the basis for the emergence of a broad assemblage of legal-economic institutions that will more directly affect the allocation of resources in society, and with that, the ecological integrity of the many ecosystems that make up a nation's environment. The structuring of legal-economic institutions constitutes the institutional stage of choice.

2. The Institutional Stage of Choice

The institutional stage of choice focuses directly on the structure of the political/legal institutions (more commonly referred to as the State) as well as the revision of those institutional structures. The two core elements at this stage of choice are the fundamental legal doctrines and specific working rules of institutional decision-making processes. Legal doctrines evolve over time through legal decision making, whereas working rules (the decision-making processes of an institution) are formally worked out by the institution itself, often in the form of bylaws. Legal doctrines and working rules are partially established by the rules worked out at the constitutional stage of choice; they are also partially a function of the decisions of other institutions developed under complex procedures. Examples of the latter include a court decision which imposes certain restrictions or obligations either upon the decision-making processes of a legislative body regarding environmental statutes or upon the decision-making processes of a government agency regarding the regulation of natural resources.

Examples of subjects where the institutional choices to be made involve evolving legal doctrines include: i) the criteria for whom will be granted standing in a court of law in environmental disputes, ii) the criteria designating who may intervene in environmental litigation (e.g., amicus curiae), iii) the standards of admissibility for evidence in environmental cases (e.g., Daubert(10)-type questions), and iv) the measure of adequacy of proof of causation in toxic tort cases. In these and many more instances, as with working rules, the evolution of legal doctrine impacts a nation's natural resources and environmental integrity.

Individuals also attempt to establish or revise working rules in the executive, legislative, and judicial branches and government agencies. Examples of areas where changes are sought in working rules, include: i) the scope of natural resource or environmental policy actions that come under the doctrine of executive privilege, ii) the rules of court, and iii) the rules for determining legislative committee structures, i.e., regarding which committee will oversee the nation's natural resources and under what rules for chairing (agenda control) and serving (participation). The area generating perhaps the most potential impact, however, concerns the working rules of government agencies and commissions overseeing natural resources and environmental protection, of which there are several examples. One such example would be the administrative rules that determine the role of intervenors at environmental hearings. Another example would be the methods or procedures by which environmental standards or criteria are set by such federal agencies as the Environmental Protection Agency (EPA), the Food and Drug Administration (FDA), and the Department of the Interior (DI)--for instance, how the EPA determines which chemicals or pollutants cause cancer; how the EPA establishes establish specific environmental criteria or standards for allowing "green labeling" of consumer products; and, whether and to what extent the DI will set in place regional advisory councils to establish grazing regulations on public lands. These are all changes in working rules that impact natural resources and environmental quality.

From a policy standpoint, the primary difficulty in promulgating working rules lies in trying to design legal-economic institutions that provide decision-makers with an incentive structure to channel behavior, such that environmental externalities are internalized and extraction of natural resources is controlled. In the simplest of terms, "all bureaucracies are not created equal." With respect to the fashioning or the redesigning of working rules and legal doctrines, much work remains to be done to identify which institutional structures enhance the efficiency of legal institutions to accomplish their stated natural resource and environmental goals. The extent to which the institutions can be so structured will directly affect a nation's natural resources and the integrity of its environment.

Just as constitutions are not immutable, legal institutions are not set in stone; they are themselves a response to economic needs. As such, they can, and do, undergo structural revisions. Changes in legal doctrines or the working rules of legal institutions will change the decision-making processes of those institutions and may alter the institutional choices that directly impact the extant structure of property rights. A full appreciation of the relationship between legal institutions and the structure of property rights is fundamental to understanding natural resource and environmental policy. Such an appreciation is best gained through a discussion of the four property rights regimes that comprise the economic impact stage of choice. At this stage of choice, we see the most prominent interface between economics, law, and natural resource and environmental policy.

3. The Economic Impact Stage of Choice

Conceptually, it is useful to begin with the notion of four distinct property right …

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Publication information: Article title: Performance Indicators for Natural Resource and Environmental Policy: Contributions from American Institutional Law and Economics. Contributors: Mercuro, Nicholas - Author, Kaplowitz, Michael D. - Author. Journal title: Duke Environmental Law & Policy Forum. Volume: 11. Issue: 1 Publication date: Fall 2000. Page number: 139. © 2008 Duke University, School of Law. COPYRIGHT 2000 Gale Group.

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