Environmental Management: Choice Between Collective Action and Government Action

Abstract

Environmental externalities create problems for the optimal supply of collective goods or goods supplied and used by a group of people (common grazing lands, common lake fisheries, etc.) and the supply of pure public goods (air and water quality, recreation, etc.). The choice between government action and collective action for correcting such a market inefficiency caused by environmental externalities is a subject matter of great debate in the literature on environmental policy. The doubtful quality of government, the problems of asymmetric information and non-convexities related to environmental externalities, and high transaction costs make governmental instruments of pollution taxes and permits inefficient. In contrast, there is evidence to show that collective action institutions can and also have been proved to be efficient in dealing with environmental externalities in all-weather situations. Two types of such collective action interventions are dealt with in this paper. The first shows that with voluntary participation or institutions providing incentives for rightful actions and penalties for wrongful actions of group members, the collective action by a group provides optimal supply of the collective good. The second type explains that there is dualism in dealing with pure public good type of externality involving two groups of people, group creating pollution externality and the group affected by it. Also, there could be multiple groups of stakeholders to this type of externality and the competition among them could result in optimal control of externality.