Institutional evolution and environmental amenities

Economists have long suggested market-based solutions to resolve perceived inefficiencies in environmental protection, often ignored by policy makers. However, perhaps buoyed by recent success such as tradable pollution permits, there has been an increased call for their use in ever widening applications. Policy makers are urged to use caution however, as underneath the market operation of any good, institutions play a hidden but critical role in the final allocation of costs and benefits of market distributions. Institutions implicitly distribute rights and duties among competing users, and the market can reach some Pareto-efficient allocation once these property rights have been fully specified.; Therefore, economic agents operating within this larger institutional framework who claim the market allocation as inequitable or inefficient are actually charging that the initial allocation of property rights was misspecified. When this occurs, they may apply pressure at a variety of political, judicial and administrative outlets to change the existing institutional structure behind the market allocation. Therefore, institutions are dynamic, and constantly evolving to reflect the changing values of society.; This dissertation examines recent institutional changes for two environmental amenities in particular—water rights transfers and species protection. Amendments to New Mexico water law granted a new group standing—the legal authority to protest the exchange of water rights. However, the statutes do not explicitly define this new group, and this may potentially introduce uncertainty into the water rights transfer market. To investigate this effect, an experimental market setting was constructed that imitated the real market before and after the institutional change. The results consistently indicate that under the new structure traders attempted significantly fewer trades, even when positive gains from trade still exist.; In 1995 and 1996, there were several attempts in Congress to place a freeze on the list of threatened and endangered species. This list, authorized by the Endangered Species Act of 1973, affords federal protection to those species, prohibiting their harm in any fashion. A congressional voting model attempts to explain legislative behavior with respect to the moratorium. Results indicate legislators place a greater weight on their underlying philosophies than the interests of their constituents.