Institutional change in the forestry sector—The explanatory potential of New Institutional Economics

Due to a changed economic situation and due to a changed understanding about the role of the state in governing forest resources, there is currently a formal institutional change under way in various European countries. It will have far-reaching consequences for the mode of governance of forests. Institutions, as the rules of game, seem to be in need of change on all levels: international and national laws, collective choice arrangements, such as forest associations or contracts between economic actors. Within economics, New Institutional Economics (NIE) is the body of literature dealing with the rules of the game. This paper focuses on those theories within NIE that try to explain them.This paper focuses on those theories within NIE that try to explain institutional change and looks for their applicability to the forestry sector. The paper argues that, because of particular characteristics of the forestry sector, we should avoid applying a too simplified (neoclassical) version of the theory that relies mainly on the explanatory power of competition, transaction costs, efficiency and (bounded) rational actors. Instead, we should extend this theory and analyse carefully the ideologies – a term introduced by Douglas North into NIE – prevailing in the different actors' minds in order to understand the driving forces of institutional change. Ideology comprises on the one hand the mental models individuals use to explain the world and on the other hand the normative value judgements they use for knowing how the world “should be”.