Environmental Governance Dynamics: Some Micro Foundations of Macro Failures

Abstract

Integration of environmental governance is considered a favorable scenario for sustainability of Social-Ecological Systems. However, the patterns of integration remain under-investigated. In this paper, we examine the relationship between the extension of governance scope and its integration in the long run. We find that, if extension positively affects integration, an indirect adverse and reinforcing effect manifests during development of the governance. This indirect effect develops because of complex institutional interplays and contradictory overlaps. Consequently, extension tends to reduce governance coherence. Transversal transaction costs appear to cause this loss of coherence. In the long-run, we predict that this micro-indirect effect leads to an Institutional Complexity Trap, where the marginal positive impact of extension on integration is low and declining over time. Four examples presented in this paper substantiate our conceptual proposition of transversal transaction costs. In addition, six water governance cases in Europe from 1750 to 2004 provide empirical support to the macro dynamics of institutional complexity trap.

Keywords: Governance, Institutional Dynamic, Socio-Ecological System, Institutional Resource Regime, New Institutional Economics, Transaction Costs

JEL Classification: Q01, Q58, P47, P48, DO2