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From market failure paradigm to an institutional theory of environmental governance


  • Jouni Paavola


From Market Failure Paradigm to an Institutional Theory of Environmental Governance - This manuscript examines how an institutional theory of environmental governance might be based on a re-interpretation and re-working of the arguments of the market failure paradigm and its main criticisms. The manuscript first examines in detail the arguments of the market failure paradigm regarding externalities and public goods, as well as their criticisms. The paper then suggests an institutional re-interpretation and revision of the key arguments of the market failure paradigm. The institutional theory of environmental governance acknowledges the interdependence of economic actors and the resulting fundamental role of conflicts as the rationale for environmental governance and its institutions. As environmental conflicts are primarily a matter of distribution rather than of efficiency, it becomes important to understand the likely consequences of institutional alternatives in the specific socio-economic and physical setting of the environmental conflicts, and the degree to which these consequences match with the pertinent social or economic goals. Keywords: environmental governance, market failure, externalities, public goods, welfare economics, institutional economics JEL classifications: Q50; H41; D62; B52

Suggested Citation

  • Jouni Paavola, 2009. "From market failure paradigm to an institutional theory of environmental governance," ECONOMICS AND POLICY OF ENERGY AND THE ENVIRONMENT, FrancoAngeli Editore, vol. 0(1), pages 87-101.
  • Handle: RePEc:fan:efeefe:v:html10.3280/efe2009-001006

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    References listed on IDEAS

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    Cited by:

    1. Afriandi, Irvan & Siregar, Adiatma Y.M. & Meheus, Filip & Hidayat, Teddy & van der Ven, Andre & van Crevel, Reinout & Baltussen, Rob, 2010. "Costs of hospital-based methadone maintenance treatment in HIV/AIDS control among injecting drug users in Indonesia," Health Policy, Elsevier, vol. 95(1), pages 69-73, April.

    More about this item

    JEL classification:

    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary


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