The evolution of environmental legislation: a strategic transaction approach.

Author:Thomassin, Paul J.
Position:Environmental policy

Environmental pollution is often a by-product of agricultural production. This by-product is different from other industrial pollution because (1) the cause and effect relationship between agricultural practice and environmental impact is uncertain, (2) there is a large amount of heterogeneity in the physical characteristics of agricultural production units, and (3) a large portion of agricultural pollution is characterized by non-point source pollution (Carpentier and Erwin 2002; Weersink et al. 1998). These types of problems often occur with intensive livestock operations, and in particular with hog production, in many parts of the world (OECD 2000). Market mechanisms may not provide workable solutions to these types of negative externality situations. As a result, a conflict of interests arises among individuals, producers, and surrounding residents that must be resolved. It is this conflict of interest that provides the driving force behind institutional change.

This paper investigates the institutional evolution of environmental legislation in Quebec that affects agricultural production and the role collective action plays in identifying and selecting working rules. J. R. Commons' framework of strategic and routine transactions provides the motivation for individual and collective action over time (Commons 1931, 1961; Rutherford 1983). This proposed framework is also used to examine current activities of both producer groups and the public who are trying to assert control over the limiting factor that future routine transactions will be based upon. The interaction among individuals, collective groups, government departments, and the legislature is identified. The choice of working rules that are implemented in legislation provides distinct sets of incentives for individual and agricultural producer behavior.

Transaction Framework and Public Policy Formulation

Commons defined institutions "as collective action in control of individual action" (1961, 69). Institutions are designed as a means of solving problems that occur because of economic scarcity. A conflict of interest will arise between the parties involved with the scarce resource. Institutions, that is, collective action, are needed to solve the conflict of interest between the parties. The criterion he used to evaluate whether or not an institution solved a problem was "workability," which considered both efficiency and distributional dimensions (Commons 1961; Rutherford 1983).

Commons' basic unit of analysis was the transaction, and he classified transactions into three categories: rationing, managerial, or bargaining (1961). This classification was based on both legal and functional criteria (Commons 1961; Rutherford 1983). Rationing and managerial transactions occur between legal superiors and legal inferiors while the bargaining transaction is between legal equals. Rationing transactions involve the distribution of benefits and burdens of wealth in society. This rationing can be undertaken through either output rationing or price rationing. Managerial transactions involve the organization of factors of production that generate wealth, while bargaining transactions involve the transfer of wealth ownership.

Commons also identified strategic and routine transactions. Within this classification, strategic transactions controlled the limiting factor in a transaction. The importance of controlling the limiting factor is that all complementary factors associated with the transaction of the limiting factor can be dealt with through routine transactions (Commons 1961; Rutherford 1983). Once the strategic transaction has been identified, it will impact the distribution of benefits and burdens to individuals in all subsequent routine transactions.

This theoretical development by Commons brings together a number of important elements concerning individual behavior and institutional change. First, Commons recognized that the limiting factor in a strategic transaction was dynamic and thus changed over time and space. As a result, institutions and their rules would also be dynamic. Second, the concept of the strategic transaction provides an incentive for individuals or groups to invest resources to gain control of the limiting factor. Thus, there is an incentive for individuals and groups to use their political, economic, and legal power to try to control the strategic transaction and trigger institutional change. Finally, there is a clear relationship between the control of the strategic transaction, institutional change, and the three other types of transactions (rationing, managerial, and bargaining). The control of the limiting factor can have direct impacts on rationing, managerial, and bargaining transactions. As the strategic transaction is defined, it will identify the opportunity sets available to individuals involved in other transactions. This will impact economic efficiency and...

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