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[Chapter 2 - Decision making]

Accounting for environmental decision making:

Chapter 3

Current institutional structures


{ I'm not that happy with this chapter. It's probably the weakest in the whole thesis. GKS 18/9/98}
3. CURRENT INSTITUTIONAL STRUCTURES
FIRM DECISION MAKING
MARKET STRUCTURE
GOVERNMENT DECISION MAKING

3. Current institutional structures

Decision making needs decision makers and they require information to make their decisions. In this section I will take a brief look at the some of the institutional structures of decision making. The next section will look at some of the information flows between these institutions and ways in which this information is coloured.

It is not always easy to separate the decision makers from the processes of decision making, i.e. a market system defines a different set of decision makers than a central planning system. This separation may in fact be an artificial division, designed to make the decision making process more amenable to analysis, (and not succeeding very well (Dryzek 1987)). If we take the view that all parties that are affected by or have power to affect the outcome of a decision are potential decision makers, then it becomes a question a tailoring the process to fit the needs of the problem and the decision makers. (The amount of information flow needed to achieve this ideal may be impractical).

How we define the scope of our problem has profound implications to the questions of who are decision makers, the process and results of decision making. Those who feel they have been mis-represented or unrepresented in a decision making process are less likely to be convinced by its prescriptions. Enforcing decision making then becomes a problem.

Institutional structures codify the types of decisions made by their participants and the range of actions available at different levels. Actions are also limited by perceptions of what can be changed or controlled by an actor. However, it is important to remember the side-effects and aggregate effects of actions.


Firm decision making

Most firms operate a hierarchical decision making process. Each level of the firm has a range of actions and is accountable to higher levels. Tsoukas (
1996) argues that firms really possess a distributed knowledge system, consisting of information held by individuals within the firm. From this he makes the conclusion that firms are decentralised systems lacking an overseeing 'mind'. However, Shiva (1993) notes that mere possession of individual and local knowledge can be irrelevant to decision making when the processes of power and information flow are unbalanced. This implies that the structure of the firm's organisational hierarchy can impose a dominant knowledge system upon its internal information.

The success of a firm is usually measured in terms of profit. Drury (1990) says that "it is unlikely that any other objective is as widely applicable in measuring the ability of the organization to survive in the future."

Arnold & Hope (1990) identify some external parties to which firms are accountable:

Governments, in as much as the legal requirements of a particular country demand.

Banks, shareholder and other sources of finance, unless they have enough liquid capital.

Customers, to the extent that customers are free to choose which firm they purchase from.

Employees, if there is {?}

The amount of information the firm has to give to these different parties gives us some indication of the power they have to affect the firm.


Market structure

Markets are decentralised decision making institutions that limit the ability of actors to control conflicts of interest. However, markets also have centralising effects,
"In this sort of system [Market economy with consumers' and firms' choice], households and producers - subject to restrictions in the interest of, for example, public health and safety - are free to decide between themselves what to produce, how and for whom. They do so with reference to prices determined by the interplay of supply and demand in free markets." (
Burrington 1991:24)

The great advantage of an ideal market is that it creates an efficient allocation of resources between agents within the market. However, citizens have to be market agents, making consumptive decisions within the market, for their opinions to be taken into consideration by 'market forces'. This presents a problem in judging environmental and sustainability issues in a market context. Animals, plants and future citizens are not, and can never be, market agents.

Another corruption from the free-market ideal is that agents have unequal power over decisions (i.e. unequal income and ability to substitute from market goods) (Gray et. al. 1996). The success factor of a market, efficient allocation of resources, may be difficult to measure in practice.

Markets are accountable to:

Governments, to limit the effects of monopolies and cartels in gaining control of market decisions.

Customers and firms, to the extent that they can substitute their consumption and production to other market places.


Government decision making

Governments are largely centralised institutions, as they are usually are the highest authority in a country. However there are usually limitations on the powers of government or on the processes they need to go through in order to change the limits of their powers. The success of a government can be measured by its ability to satisfy the requirements of population and external governments.

Governments of accountable to:

Citizens, limited by its ability to legitimise its position or control dissent. Democratic forms of government also require governments to appease the needs of voters.

Legal structures with the country.

External governments, either by military, financial or communicative methods.

External investors and sources of aid, or international exchange.

Governments also take part in wider organisations such as the EU or the UN. Similar problems occur here with the level of accountability left to negotiation and limited powers of enforcement (although financial and military powers may be quite strong). Intergovernmental activities in Iraq, Bosnia and Somalia highlight some of these problems.

This has looked at some of the areas where current decisions are made. It is obviously not an exhaustive list, but it is useful to know where information is required and used in order to find the best form for that information. The next section will look at some of the forms of information that pass between these institutions. This information is used to provide accountability between institutions and allow decisions to be made.


[Chapter 4 - Accounting for decision making]

Finished 13/9/96
Created 18/9/98