Public choice, institutional economics, environmental goods

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Abstract
Public choice theory offers a challenge from within standard neo‐classical theory to both sides of recent debates on the use of cost‐benefit analysis in environmental policy‐making. Both defenders and critics of cost‐benefit analysis assume that political actors are benign channels for the formulation and implementation of environmental policy. The public choice theorist maintains that the consistent application of standard economic theory to non‐market spheres shows that this assumption is false. Environmental problems that arise from ‘market failure’ can and should be solved, it is claimed, by institutional change within the market sphere itself through a redefinition of property rights. This article criticises this public choice perspective on the environment. While the public choice criticism of the benign view of state actors has some power, the general project of extending standard assumptions about the economic agent to non‐market domains is flawed. The explanatory and normative assumptions of the ‘old’ institutionalism of classical economics offer a more promising starting point to an institutional understanding of environmental problems than does the ‘new’ neo‐classical institutionalism offered by public choice theory.

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