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ECONOMIC INSTRUMENTS AND CLEAN WATER: - page 22 / 30

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But even members of a constituent assembly are not free to choose "rationally" between different alternative solutions to the arrangement of the political system. Their choices will be restricted to incremental ones by informal institutions, such as historical events or cultural perceptions. One reason for French centralism that is often mentioned is the size and diversity of the country. As was evident during the fourth republic, France lacked internal coherency and a strong executive was created. How- ever, Germany and the United Kingdom are also large countries, but have not resorted to centralism. German federalism seems to rest on the legacy of duchies and town governments, but this approach to coherency can only be understood by considering Germany’s specific historical past. Informal institutions can also develop in a shorter time span, such as the egalitarian welfare ideology in the Nordic countries in the 20th century, or the general planning optimism that dominated in most Western European countries from 1950-1970. While formal institutions such as constitutions and principles of public administration are written and dated, informal institutions are somewhat more heterogeneous.

The four case studies of water pollution control show how policies were decisively influenced by formal and informal institutions during the process of policy-making. Perhaps the Dutch Waterboards are the best example of how the heritage of yesterday’s regulations affects today’s decision-making. It is interesting that neither Bressers nor Schuurman, the two Dutch scientists who have investigated the use of

economic instruments in water pollution control policy in the Netherlands, the role of the Dutch Waterboards. In their analysis, the existence of this seen as ex ante, an exogenous factor to the functioning of economic

have accorded administrative instruments.

much interest to infrastructure is To the national

observer, who does not compare, it is difficult precisely the existence of Waterboards, as safeguarding the Polluter-Pays Principle.

to assess the significance of self-financing entities, that

such a structure. Yet, it was assisted the Netherlands in

VII.

WHAT LESSONS CAN BE LEARNED?

For governments keen to introduce more economic instruments for pollution control as well as for other public policies, the water pollution control study offers interesting implications to consider.

Economic neo-institutionalists have pointed out that institutions are a precondition for markets -- clearly, without institutionalising property rights, market transactions cannot properly take place (Coase, 1988). However, institutions other than property rights are often implicitly treated as barriers to the free play of the market forces. According to this perception, regulatory reform is deregulation, that is, it consists simply of the removal of institutional barriers to competition.

In practice, however, de-regulation means re-regulation. Regulatory reform does not mean leaving the market to itself. Exclusive rights, quotas and planning are substituted by tenders, contracts and other economically-oriented instruments in order to enhance competition as well as overall welfare. In this process, too little attention has been paid to the importance of basic institutions of policy-making -- whether formal or informal. It would be unrealistic to pretend that governments have the liberty to shift completely from existing national policy styl es.

A key lesson is that policy success depends on being more alert to the opportunities and limita-

tions that follow from established policy styles, and being more attentive to basic of the nation’s system of public administration. Institutions already in place may altered on an incremental basis to support the use of economic instruments. government responsibility in Germany and Denmark was particularly unfortunate,

properties and oddities need to be modified or The system of local because the municipal-

ities

found

it

possible

to

cross-subsidise

industry’s

pollution

control

costs,

a

practise

institutionalised

since

22

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