Conference System, VII Research Workshop on Institutions and Organizations

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Theoretical analysis of the effectiveness of formal rules: the perspective of New Institutional Economics
Bruna Liria Avelhan, Decio Zylbersztajn

Last modified: 2012-09-14

Abstract


It is observed that the Brazilian environmental legislation is among the most advanced in the world. However, the performance or effectiveness of this legislation is still a great challenge. Lunardi (2011) says that, the mismatch in the creation and implementation of laws and official policies in the Brazilian state has it demonstrated a big problem. Allied to this, Rech (2009) states that the effectiveness of law is the principle more important than the violation itself or obligation of the law. Thus, the objective of the study in question is to understand theoretically the incentives for the adoption of formal norms dealing in some way the common good, particularly in agriculture-based systems. Thus, it is a theoretical study that seeks, through the line of the New Institutional Economics (NIE); understand the incentives and the environment involved in adherence to formal norms. In this sense, the study took an exploratory way, to make it more explicit (GIL, 1989).

 

Observing agriculture-based systems note that the legal and regulatory issues have always been important, they deal with activities that involve issues like food security, sustainable management, preservation and restoration of the environment, among others. Thus, in this work, the concern will be on legal matters dealing with the environment and at the same time, impact in the agricultural activities. "The law influences and is influenced by economics, and organizations influence and are influenced by the institutional environment" (ZYLBERSZTAJN; SZTAJN, 2005, p. 03). Given the statement, there is the importance of consideration of the institutional environment in economic relations and, simultaneously, the importance of understanding institutions.

 

From this, and within the universe of legal norms related to agriculture-based systems, this study chose the environmental legal norms. This choice is explained by the importance of environmental issue and the growth of their accuracy from the 90's. Thus, when we observe activities related to agriculture-based systems is noted that in its origin, such activities are based on natural resources or environmental goods. Thus, the concern with the proper balance between preserving the environmental conditions and agricultural development is an important issue. In 1981, Romeiro and Abrantes already showed this concern by placing that accelerated modernization of the sector, through the increasingly intensive use of inputs and equipment, encouraged by official policy, had a negative impact on the environment. Besides, adding that in terms of productivity, these changes did not show significant results at the time (ROMEIRO; ABRANTES, 1981).

 

Today, productivity referred to the authors has advanced significantly, however, highlights that the another point still lacks effective improvements. It is a challenge that environmental legislation attempts to provide guidelines in the form of regulations (laws, decrees, instructions, etc.), but in the implementation phase in trouble. According to Brazilian law environmental goods are those of diffuse interest, essentials for maintaining environmental quality. Thus, the environmental goods are superimposed on public or private nature that a good may have. (DIREITO [...], 2011). The holders of possession or ownership of the environmental good should be both the government as civil society. Thus, it there is the possibility of having a private good and public good with diffuse interest (DIREITO [...], 2011).

 

Thus, the importance of this work lies in understanding the incentives for compliance with those laws, based on the optical systemic guided by the concept of agro-industrial system. In this regard, it notes that the process of implementation of legislation, particularly in the environmental area, requires great human support, financial and technical (BENJAMIN, 1993). Thus, according to the author, the bigger the inconsistency between the regulation and conduct of the regulated group, the higher the costs of implementation. Following this guidance and the perspective of New Institutional Economics (NIE), this process, beyond the "conventional" costs to be operationalized, it should has also burdened with the transaction costs.

 

From these considerations it is reasonable to consider that the institutions do not always evolves efficiently (ZYLBERSZTAJN; SZTAJN, 2005). Williamson (1996) treats of the intentionally inefficient institutions. The author states that in many cases, the  organizational form implemented is less efficient than the best feasible. This occurs because often there is no political support to make the best arrangement feasible (WILLIAMSON, 1996). Thus, there is an apparent inefficiency, or rather, inefficiencies by design, as the author classifies. Allied to this North (1994) gives the exact importance of the institutional environment for economic performance by putting that economic performance is a function of the institutions and their evolution. Along with the technology employed they determine the transaction costs and production.

 

From this orientation, there is a need to consider the regulatory environment in which agents are inserted to avoid the risk to get misleading or inaccurate conclusions (ZYLBERSZTAJN; SZTAJN, 2005). Accordingly, consideration of transaction costs helps in clarifying the forms assumed by property rights and the regulation. Thus, the NIE enables a better to understanding of human behavior, the institutions and the results of the resources involved in economic activity (LIBECAP, 2005). So that we can understand incentives that influence in the adoption of formal norms, the understanding of certain concepts is necessary. It are addressed in this way, the concept and implications of institutions on costs to economic agents, the social cost, property rights and its link to the commons, and the concept of agroindustrial system. Therefore, authors like Coase, North, Barzel, Eggertsson, Libecap, Alston, Goldberg and Zylbersztajn are considered.

 

Whereas, in this way, the goods are composed of multiple dimensions, often becomes expensive for the state to define property rights in all valuable dimensions, and expensive to do the enforcement of property rights in all dimensions (ALSTON; MUELLER, 2005). Thus, some attributes can be either de jure or de facto left as open access. It is when the state leaves the rights of to use attributes free that individuals and groups have incentives to expropriate them. And, conversely, when the property rights are more exclusive, the bigger the incentive to maintain the value of the property.

 

Without some limits on individual behavior to better translate the expanded notion of the common good, benefits and costs social, only the private calculations of net benefits will govern the decisions of resource use (LIBECAP, 2005). Moreover, another factor to consider in state regulation to the common property, according to the author, is the value of the resource in question. The more valuable, the bigger the tendency of competition for its control, and potentially, greater losses of income of the parties that competing from the good. Following this logic, it is observed that the need for clear legal definitions of property rights comes up with the increasing number and heterogeneity of the involved parties (LIBECAP, 2005). With the largest number of people, many them will claim the resource and many will be excluded from its use (OLSON, 1965 in LIBECAP, 2005). With increasing heterogeneity, the costs to produce property rights and access to information increases, so it becomes more difficult to reach a political consensus, and enforce the agreement (LIBECAP, 2005).

 

It must be emphasized that the private property rights are those that best align the incentives for efficient use of resources, because in this configuration the owners are the residual claimants. In the case where the property is of state, no there residual claimant clear. However, if there are third party effects  associated with private property, perhaps this definition might not be socially optimal, even when resource values ​​are high. Often  very special goods or unique value goods are maintained and managed under public ownership. The national parks with important role in the management of natural areas are an example of this occurrence (Libecap, 2005).

 

Finally, when considering the concept of agribusiness systems, it is noted that the issue of costs to agents should be viewed in a systemic way, as proposed by Goldberg (1957). Thus, it is necessary to consider all actors involved in the production process, including the institutions, approaching the North logic. In the Goldberg perspective of the analysis, there are two levels of aggregation: the first is at the firm level, and the second considers the macroeconomic environment and the institutional environment, that affect the coordination capacity of the system as a whole (ZYLBERSZTAJN, 1995). In this sense, Zylbersztajn (1995) adds that the consideration of transaction costs and institutional environment are important determinants of modes of governance and are also equally important in the understanding and design of governance structures between agents in agribusiness systems. By using the concept of SAG, it is assumed that all actions taken at the macro level (institutional environment) will reflect in the exchange conditions between the agents, thus affecting the level of the firm, as well as coordination of the entire system. In this orientation, institutions have matter in the allocation of resources, taking an important role in the dimension of transaction costs in the economic environment (ZYLBERSZTAJN, 1995).

 

Based on the literature review, it was observed that, when dealing to common goods, the state regulation to be solving the problem becomes more complex. This is due to the configuration of such goods, commons to society. In this sense, this good is owned by no one or, often are characterized as public goods, but with economic value, as water. Moreover, in the case of commons, such as air, the economic activities that affect the quality of it are diverse and very difficult to control / monitor, increasing significantly the costs of control and monitoring by the State, and thereby contributing to decreased effectiveness of formal norms. Another aspect to consider for the effectiveness of the rules is the costs for economic agents adhere to the same, in this case, the transaction costs.

 

From this, it is necessary to place that to develop or modify a rule, in short, make an institutional change, it is necessary to pay attention in several points. Some parts will predict a worse situation with the change, with compensation absent, even in the face of potentially large aggregate gains. Others may predict improvements, as long as their earnings are little taxed or nothing. Accordingly, an accurate analysis on the severity of the problem, the nature of the solution, the identity of who wins and who loses, the compensation to be paid, and form are items that must be considered when dealing with commons (LIBECAP, in 2005). It must consider that even if the intervention reduces the losses in the aggregate, the policy determines the nature of the result, as well the distribution of benefits and costs, thus the institutional response may have little resemblance to what could be the ideal solution (LIBECAP, 2005).


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