On Appraising Environmental Institutions*

Changing relative prices and conditions of profitability lie beWnd many demands for new institutions. The emerging nature of environmental disequilibria suggests that allocative effects of alternative institutions can be studied before the difficult question of income distribution. "Externalities " are viewed as joint products, one of which is not priced. AOS~TIv: " eco~omics of environmental, ~nstitutrons IS a necessary prerequisiteto the development of worthwhile nor-mative prescriptions. This paper stresses the need for the normative engineers of social change both to understand this positive eco-nomics and to evaluate solutions that have been tried in other regions. Engines of Institutional Change The induced innovations hypothesis em-phasizes that changes in factor prices influence technological change so as to conserve the newly high-priced factors. Hayami and Ruttan [9] make institutions such as Agricultural Ex-periment Stations and farm machinery com-panies vital links in their explanation of in-duced technological change. Ruttan [13] has suggested that the induced innovations idea be applied to institutions as well. Schultz [17] has given an economic framework for explain-ing changes in institutions. He concentrates on Institutions that Render Services to the Econ-omy... A partial list includes... (1) those that reduce transaction costs (for example, money, future markets), (2) those that influ-ence the allocation of risk among the owners of the factors of production (contracts, share ten-ancy, cooperatives, corporations, insurance, public social security programs), (3) those that provide the linkage between functional and per-sonal income streams (property, including in-* Published with the approval of the Director of th