In addition to the weakness of the

In addition to the weakness of the legal system, many cultures are not given to litigation in the same way that Western culture is. Courts are used as a last resort, which means they are rarely used. Since this is common knowledge, regulations that depend on court action are not complied with. Fines are set at levels that are too low to deter violators given also the low probability of apprehension and conviction. Regulations that are replicas of developed country regulations have little grounding in local realities and culture and are therefore largely unenforceable. In cultures where the institution of private property rights is not sanctioned and contracts are not enforced by courts, (e.g., parts of sub-Saharan Africa), economic instruments that are based on private property rights or market creation are likely to fail. In these cases, the recognition and protection of customary, communal, or tribal rights are preferable to their supplantation by alien institutions of private and state property. Papua New
Guinea provides an example of sensitivity and accommodation to institutional weaknesses and
cultural traditions and realities. Indeed, traditional societies, while having weak legal systems and undeveloped modern institutions, often have time-tested traditional institutions, management systems, and customary use rights that can be strengthened or used as models for the development of new institutions and instruments that fit the local cultures and traditions as well as emerging new realities (e.g., commercialization, new technology, population growth, etc.).
Undeveloped Capital Markets and High Discount Rates
Natural resource conservation and environmental protection are analogous to investment, in the
sense that they involve high current costs in return for a stream of future benefits of higher present value. This creates a cash flow problem, especially for societies with limited cash incomes. This problem can be solved through current borrowing and future repayment, a solution that presupposes well-functioning capital markets. In many developing countries, capital markets are segmented or distorted through interest rate ceilings, credit rationing, and capital subsidies, etc. Credit is generally very costly for small borrowers and often unavailable to those with no secure property rights for collateral. Furthermore, low incomes, often barely above survival levels, economic uncertainty, and political instability result in very high private discount rates applied to future benefits. The implications of capital scarcity and high discount rates for the selection of instruments are that the right instrument does not impose a high initial capital cost. Therefore, mandated technology such as water treatment plants and economic instruments, such as environmental performance bonds or auctioning of pollution permits, are not suitable for countries with undeveloped capital markets and high rates of discount.3 Where initial capital costs are unavoidable, as in the case of water or energy
supply, instruments that aim at full cost pricing must accommodate the capital constraint by amortizing the capital costs into monthly payments integrated with the variable costs (user charges). In the case of natural resources, especially land, assignment of secure property rights is usually an effective mechanism for improving access to capital markets and for lowering the private discount rate for poor farmers. Removal of interest rate ceilings and capital subsidies (investment incentives) for large-scale industries increases the availability and reduces the cost of rural credit, further encouraging long-term investments such as soil conservation and tree planting.
Formative Stages of Development
In developed countries, the selection of instruments for environmental management is often
constrained by the legacy of existing regulations, an entrenched environmental bureaucracy, and
vested interests created by past and present policies and structures. Furthermore, with mature
industries and cities and virtually all infrastructure in place, it is technically difficult and economically costly to introduce radical policy changes or new instruments. Retrofitting industrial plants and urban infrastructure, put in place under a different policy regime, are often very disruptive and costly,necessitating a very slow and gradual process of adjustment with grandfathering of existing industries.
Developing countries, being in the formative stages of their development, have considerably more
flexibility than developed countries to introduce new policies and instruments of environmental
management. First, without a large environmental bureaucracy and the vested interest created by
past regulations, developing countries have an almost clean slate to introduce new instruments that best fit their own circumstances. Second, the limited fixed plant and infrastructure in place, the higher rates of investment and economic growth and the rapid turnover of capital stock imply lower implementation and compliance costs for new instruments as well as greater effectiveness, provided that they are expected to remain in place and escalate over time to fully internalize environmental costs.