- More involvement of private actors and markets in environmental governance has been promoted.
- This neo-liberal trend has not reduced the role of the state, rather changed it.
- Results regarding efficiency gains from marketization are mixed.
- The development has created serious distributional issues.
- Public goods characteristics and high transaction costs limits the role of markets.
This paper analyzes the expanded role of private actors and markets in environmental governance. The public goods dimension of environmental services renders privatization and trading challenging. To illustrate the key issues involved, a series of privatization efforts and market creations are reviewed. Despite the focus on privatization, the empirical material shows that the role of the state is still very pronounced. It defines the commodities and property rights, and plays a key role in setting up and regulating the markets. In the case of payments for ecosystem services, public authorities even appear as the dominant ‘trader’. Privatization and markets may reduce costs of delivering the service, while this is not universally true. Moreover, the service delivered often is transformed to make trade possible. Finally, high transaction costs may prohibit the creation of markets. The conflict between public goods delivery and private profit motive makes public control both important and difficult. Finally, several distributional issues following this neo-liberal development are highlighted.
Keywords: Environmental Governance; Privatization; Market Creation; Public Goods; Motivation; Transaction Costs