Volume 3, ISSUE1/2012 - Review of Applied Socio-Economic ...

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ISSN: 2247-6172
ISSN-L: 2247-6172
Review of Applied Socio- Economic Research
(Volume 3, Issue 1/ 2012 ), pp. 200
URL: http://www.reaser.eu
e-mail: editors@reaser.eu
economic activities performed on a market fail to reflect the transaction costs and fail to efficiently attach the
property rights.
In the light of our discourse we can enunciate, punctually, the limits of the standard theory regarding
the environmental issues. Thus:
according to the standard economy the complete and objective definition of the property rights is
performed in the absence of the transaction costs. This is why the right of using resources will be
assigned automatically to the agent that offers a greater usage value. But the scenario of zero
transaction costs belongs to a theoretical field. In reality, these costs appear, are positive, and the
adjustment of the prices on the market cannot take place instantly, as the neoclassical economic
theory suggests. The effect of the instant adjustment of the prices to the new market conditions is
reflected in disequilibrium at the level of the demand and supply. According to this line of thought
and extrapolating the analysis to the level of the markets of goods offered by the environment – as
long as they exist – they establish that in this case the offer is inelastic (the environment goods are
given and not produced). This inelasticity can be translated in high transaction costs, emerging thus
the inefficiency of the market.
From the property rights’ perspective, it is considered that they precede the act of transactional
exchange on the market. When the property rights are taken into account and are positive, the result
is an imperfect definition and application of the rights that is, another cause for the emergence of the
market’s imperfections. We should highlight here that the phenomenon of the market’s failures and
implicitly the presence of externalities, modelled by the standard economic theory, is in close
connection to the existence of transaction costs.
On the theme of externalities, the difficulties arise not from their identification, but from their
internalization. There are two ways through which the costs may be internalized: through the taxes,
subventions etc. And through the market’s mechanisms. The desired effect of the measures,
regardless of their nature, is that of creating responsibility for those who provoked the costs. But the
solutions of the standard theory regarding the issue of the externalities, through the mediation of the
Pigovian taxes, suffers from a certain degree of inconsistency and this for at least two reasons:
firstly, the logic of the Paretian analysis, which is being invoked, requires a priori the definition of
the property rights, although the externalities are a result of the lack of rights or of an inefficient
definition of those rights. In other words, if we suppose that the rights are from the beginning well
defined, then the models that regard the issue of externalities are not justified, because these will not
exist anymore. Secondly, at a theoretical level, the externalities describe a physical interdependence
between the polluter and the polluted. Given the complexity of the social construction, we may think
that in reality it is almost impossible to identify and isolate the interdependence between two
individuals 13 . In respect to the internalization of the externalities through market mechanisms, the
standard theory suffers from the same inconsistency derived from the fact that, as already mentioned
at the first point, the transaction costs are a priori regarded to be zero.
The ideas extracted from this analysis take the discussion to a fascinating level, that of new ideologies
and paradigm changes. The bibliography on the theme of the environment begins from the criticism of
the economic neoclassicism, in a larger sense, and the environmental economy, in a restricted sense, and
has been developing – in a Popperian manner – in two main directions: Institutional Ecological
Economics and Free-market Approaches to Environmental Protection 14 . It is obvious that from a
methodological point of view, these two schools of thought are inspired by the Institutional and Neo-
Institutional School of Rhinking and the Austrian School of thinking.
13 Vatn A., Bromely D. W., Externalities – A Market Model Failure, in Environmental and Resource Economics, 9, 1997, p 136,
disponibil online la: http://oldweb.econ.tu.ac.th/archan/chalotorn/on%20mkt%20failure/vatn%20et%20al.pdf;
14 For a good overview over the differences and similarities between the two alternative paradigms, see Slavikova L, Kluvankova T.,
Jilkova J., Bridging theories on environmental governence. Insights form free-market approaches and institutional ecological
economics perspectives, in Ecological Economies 69, 2010, p 1368-1372;