Democracy, Political Institutions, and Environmental Policy☆

Democracy, Political Institutions, and Environmental Policy☆

Democracy, Political Institutions, and Environmental Policy☆ PG Fredriksson, University of Louisville, Louisville, KY, United States A Sauquet, Univer...

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Democracy, Political Institutions, and Environmental Policy☆ PG Fredriksson, University of Louisville, Louisville, KY, United States A Sauquet, University of Ottawa, Ottawa, ON, Canada JR Wollscheid, University of Arkansas-Fort Smith, Fort Smith, AR, United States ã 2016 Elsevier Inc. All rights reserved.

Introduction Democracy Theory Empirical Evidence Political Institutions Theory Empirical Evidence Conclusion

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Glossary Majoritarian electoral system The electoral candidate receiving the highest vote share represents a district. Measures of democracy Empirical indices which measure the level of democracy across countries. Parliamentary system of government The executive and legislative branches are intertwined. The legislature is accountable to the executive branch. Presidential system of government The executive and legislative functions of government are separate. This

provides checks and balances, which limit the power of both the chief executive and the legislature. The president and members of the legislature are elected separately by voters. Proportional electoral system Seats in the legislature are allocated to each party according to the proportion of votes obtained. Veto players Major individual or collective actors who have to agree for a policy change to occur (e.g., the president, the House, the Senate).

Introduction This chapter surveys the literature on the effects of democracy and forms of political institutions on environmental quality and policy outcomes. We discuss the literature that makes comparisons between the environmental outcomes in democracies versus autocracies, and the different levels of political competition within democracies. The institutions surveyed include presidential versus parliamentary governance systems, majoritarian versus proportional electoral rules, closed versus open voting list systems, term limits, veto players, and legal heritage. While the literature has started to address these issues, results have not fully converged and research is still ongoing. The chapter is structured as follows. The next section discusses the theoretical and empirical literature on democracy and the environment. The subsequent section discusses political institutions. The last section provides a brief conclusion.

Democracy Theory Democracy is a multi-dimensional concept and can be viewed from different perspectives. Researchers generally try to measure the degree of democracy as a country’s level of political rights and civil liberties. The level of political rights is jointly determined by the degree of freedom to run competitively for political office and the level of political participation among the voting public. The level of civil liberties encompasses the extent of freedoms of expression and beliefs, the right to organize, the rule of law, and the degree of personal autonomy and individual rights. Why would the level of democracy affect the environment? Recall that the literature on the Environmental Kuznets Curve recognizes that an increase in per-capita income generally results in improved environmental quality. The improvement occurs in part due to an increased demand for environmental quality as income rises. The degree to which a higher demand for environmental quality feeds into actual environmental policymaking depends on a number of factors, including the level of democracy ☆

Change History: January 2016. PG Fredriksson and A Sauquet updated the sections and text to the entire article and added references.

Reference Module in Earth Systems and Environmental Sciences



Democracy, Political Institutions, and Environmental Policy

and existing political institutions. The extent to which citizens are allowed and able to organize collective action certainly impacts environmental policy outcomes. Early theoretical work examined how environmental regulations are formulated to maximize the utility of (i) the median voter (democratic systems), or of (ii) an authoritarian ruler (non-democratic systems). The results are driven by two forces. First, because of the long-term nature of many environmental problems, a shorter time horizon of the policy maker implies less stringent environmental regulations. Assuming that authoritarian rulers tend to have relatively short time horizons, democracies set stricter environmental regulations than non-democracies. It should be noted, however, that this assumption may be quite strong since empirical and anecdotal evidence suggests that authoritarian regimes may have very long survival periods. Second, an autocratic ruler is likely to appropriate a larger share of the economy’s income for himself. This has an ambiguous effect on the strictness of environmental regulations. On the one hand, a higher fraction of national income going to the autocrat increases his marginal cost of environmental standards, since the autocrat now bears a larger share of associated reductions in national income. On the other hand, receiving a larger share of the national income may also lead the autocrat to set stricter environmental standards assuming environmental quality is a normal good. This would occur to the extent that the autocrat benefits from the provision of environmental quality herself. Other theoretical contributions discuss interaction effects. For example, the literature has found that the effect of income inequality on pollution levels depends on the degree of democracy. Assuming that environmental quality is a normal good and that the productivity of the median citizen is lower than the average’s citizen’s productivity, the effect of an increase in the median voter’s income is conditional on the level of democracy. In a complete democracy, a more equal income distribution is predicted to improve environmental quality by increasing the median voter’s income. However, in more autocratic regimes where the poor are disenfranchised and only a privileged group is allowed to vote (or, to influence policy), higher income equality reduces environmental quality by lowering the income of the median voter. The literature also discusses the case where the relatively wealthy part of the population is able to mitigate the harmful effects of pollution by private mitigation efforts which reduce the adverse health consequences of pollution. In this line of research, the elite is assumed to be able to protect itself from health risks; therefore, it is unwilling to help pay for improved environmental quality for the poor. In an autocratic regime controlled by a wealthy elite, the level of environmental regulation is predicted to be essentially non-existent. However, in democratic societies where the poor also have influence, some forms of public environmental policies are predicted to be implemented. Democracies are also more likely to provide information on the health hazards associated with pollution emissions, raising the demand for environmental policies. In sum, most predictions emerging from the theoretical literature point to a positive effect of the level of democracy and environmental quality, although in some situations the effect may be reversed. In the most developed democracies, fair and free elections determine who sets environmental policy. Some theoretical work differentiates between various aspects of democracy, particularly the levels of political participation (democratic inclusiveness) and political competition, respectively. Greater levels of democratic participation and political competition are predicted to yield more stringent environmental policies. When these two democratic forces are relatively strong, environmental and polluting industry lobby groups become relatively less influential in the environmental policy process. Only if the degree of political competition is sufficiently high will incumbent politicians be under pressure to move environmental policies towards their welfare maximizing levels. Moreover, with higher democratic inclusiveness, the interests of a greater share of the population are taken into account in the policymaking process. Importantly, the impact of democratic participation on environmental outcomes is predicted to be conditional on the level of political competition, and vice versa. The literature recognizes that electoral outcomes are determined by a multitude of political choices on a large number of policy issues. Environmental policy may be viewed as a “secondary” policy issue of strong interest to only a subset of voters. This is in contrast to “frontline” policy issues of major concern to most voters. In a political agency model, an incumbent politician may try to win the votes of a small group of single-issue voters by distorting their environmental policy choices away from the politician’s own preferences and towards these voters, who may have strong either pro- or anti-environment preferences. In this model, the tendency to cater to these groups using the secondary policy is particularly acute when elections are highly competitive and additional votes are especially valuable. In this case, political competition may lead to distorted policy choices different from the politician’s preferred secondary policy, because the politician seeks to win the votes of particular groups with intense preferences. Additional work on political competition use models where bribery takes place at two different levels of government. Bribes may be offered both to the high-level politicians deciding environmental policies (“grand” corruption) and to the bureaucrats managing the implementation of these policies at the local level (“petty” corruption). More intense political competition is predicted to yield more stringent environmental policies (higher pollution taxes), lower levels of pollution emissions, and higher fines for cheating on the reported amount of emissions. However, the level of compliance with existing regulations may actually fall with more intense political competition. While higher pollution taxes raise the incentive to under-report emissions, this incentive simultaneously falls with a higher penalty.

Empirical Evidence In empirical work, researchers have used at least five different measures of democracy. The first four are (i) the Freedom House index; (ii) the Polity index; (iii) an average of the Freedom House and Polity indices; (iv) the Vanhanen index. These first four indices measure the level of democracy using four criteria: (a) the existence of regular, free, equal and general elections; (b) the degree of legislative representation; (c) the separation of legislative, executive and judicial powers; and (d) the existence of civil

Democracy, Political Institutions, and Environmental Policy


rights. These indices are highly correlated. A fifth index of democracy is a measure of the size of the winning coalition relative to the number of individuals selecting a leader. While most developed countries are democratic, economic development may lead to a deterioration of environmental quality. Finding a firm link between the level of democracy and environmental quality (e.g., emissions levels) may therefore be a challenge. For long-term transboundary pollution problems, the benefits of cooperative policy action (international environmental agreements) do not appear until years later. A link between democracy and environmental policy (or, environmental commitments) often proves easier to establish, and part of the empirical literature has chosen this route. Most empirical studies establish a positive relationship between the level of democracy and the stringency of environmental policies and quality. However, contrasting findings are also reported in the literature, especially for poorer countries. In low-income situations democracy is sometimes imposed from the outside, reducing legitimacy. Thus, the empirical effects of democracy are ambiguous. We start by discussing positive effects reported in the literature. In various studies, democratic countries have been found to be more likely to be associated with lower atmospheric and water emissions such as of chlorofluorocarbon, SO2 and CO2 emissions, smoke, heavy particles, total suspended particles, reduced chemical and biological oxygen demand, and fecal concentration in water. More democratic countries are also found to be more prone to protect land from development, to reduce deforestation, to provide public sanitation, to reduce the lead content in gasoline, and to put less pressure on marine resources (only at high income levels). Democracies are also reported to be more likely to ratify the Montreal Protocol on chlorofluorocarbon emissions, the United Nations Framework Convention on Climate Change (the Rio Convention), the Kyoto Protocol, the Convention on Biological Diversity and the Convention on International Trade in Endangered Species, to comply more completely with the reporting requirements of multilateral environmental agreements, and to take stronger action on climate change in general. Thus, the theoretical prediction of a positive effect of democracy receives substantial empirical support, although the effect is not unambiguous. Theoretically predicted interactions also receive empirical backing. The lead content in gasoline is found to be lower in countries with greater levels of political competition, particularly where citizens participate to a greater extent in the democratic process. Conversely, a higher rate of democratic participation reduces the amount of lead in gasoline (i.e., participation raises the stringency of environmental regulations), but only in countries where the level of political competition is sufficiently high. In such countries, the participation rate has meaningful economic, and thus environmental, effects. However, a higher democratic participation rate has no effect on environmental policy in pure dictatorships with an absence of political competition. Additional factors such as income inequality, the prevailing age distribution, the level of human capital, and the urbanization rate have all been found to affect the net impact of a more democratic regime. However, the results reported in the literature have not converged on this point. As mentioned above, the marginal effect of democratization on environmental quality has been found to rise with per capita income. At very low levels of income, more democratic institutions do not yield improved environmental quality and may worsen the environment. This is possibly because the poor instead strongly favor faster economic growth. Moreover, weak institutions may also yield policy makers with a short time horizon. As the income level rises, priorities eventually shift towards improved environmental quality. Some suggest that the level of democracy is more important than the per capita income level for explaining deforestation rates. In contrast, according to some authors the effect of democracy weakens as income rises. The ability to organize collective action is clearly important for the ability of citizens to influence policymakers. Greater civic freedom, i.e., the freedom of civil society to organize action, has been shown to raise the level of compliance with international environmental agreements. Moreover, for a number of pollutants, increases in civil and political freedoms significantly improve environmental quality. For other pollutants, however, these freedoms appear to have no effect. This may be due to a paradoxic relationship between democracy and civil society’s policy influence. In fact, the literature reports that the marginal effect of environmental non-governmental organizations (ENGOs) on governmental decisions to ratify international environmental agreements is greater in autocracies than in democracies. The reason is unclear, but it is possible that more democratic countries with a greater number of ENGOs face stronger political pressure to agree on and honor stricter international obligations. Moreover, voters already hold governments more accountable in democracies. The effect of democracy appears to accumulate over time. If environmental policy reforms are incremental improvements beyond earlier policy stringency levels, then the historical level of democracy may influence today’s policy choices. Empirical evidence suggests that it makes a difference whether a country was democratic or autocratic decades ago. The discounted stock of historical experience with democracy appears to a more important determinant of today’s climate change policies than the current level of democracy. As already discussed, the results reported in the empirical literature are ambiguous. Higher levels of democracy have in some studies been found to increase deforestation rates, CO2 emissions, pressure on marine resources, and water-related soil erosion. Higher levels of democracy are also reported to have no significant effect on pollution measures such as dissolved oxygen, biological oxygen demand, chemical oxygen demand, and nitrates. Some evidence suggests that the level of corruption may be a more dominant determinant than democracy, and it is therefore important to take both into account in empirical work. An inverted-u-shaped relationship exists between democracy and deforestation. Countries in democratic transition (young and/or weak democracies) may have the highest deforestation rates. Moreover, political rights and civil liberties have been found to have diverging effects on deforestation rates across continents. While deforestation rates declined in Latin America and Africa during years 1972–91 as a result of improvements in these dimensions of democracy, Asian deforestation increased. However, these findings may be confounded by reforestation programs in Bhutan and China, where the level of democracy is low.


Democracy, Political Institutions, and Environmental Policy

The empirical literature studying the effect of political competition on environmental policy at the U.S. state level suggests that Democratic and Republican governors spend similar amounts on the environment as long as they compete intensively for office. However, spending choices diverge when they are no longer competing for office. Scholars have also studied the political business cycle for environmental policymaking, focusing on the ratification of international environmental agreements (IEAs). In OECD countries, IEA ratification has been found to occur in the year following a major election. Similarly, Flemish municipalities tend to adopt environmental taxes subsequently to elections. The “honeymoon” post-election period is furthest in time from the next election and the elected government is most likely to enjoy strong support. In developing countries, however, governments take advantage of preferential treatment in IEAs that increase the net benefits of participation, and thus increase the reelection prospects of political leaders. Developing countries therefore tend to ratify IEAs before elections. The literature has studied the relationship between the level of satisfaction with democracy and environmental policies. Europeans are more satisfied with domestic democracy the more comprehensive is the set of environmental policies in place and the greater is environmental spending. However, higher environmental taxes have the opposite effect. Why is the empirical evidence on the role of democracy occasionally ambiguous? First, as discussed, it should be recognized that the theoretical work in this area does not yield unambiguous predictions. A number of factors including the level of economic development clearly interact with democracy. Moreover, in empirical analysis, it may be important to take lags and overall historical experience with democracy more into account, as changes in democracy and environmental policies are unlikely to occur simultaneously. Furthermore, some research indicates that for the ratification of international agreements, factors such as memberships in international organizations, trade intensity, and the number of countries that already have ratified may be more important determinants than the domestic level of democracy. Note that these factors may in turn depend on democracy, however. Finally, political institutions and electoral rules have been shown to affect environmental policy outcomes, and thus the particular institutional framework appears to play a role, at least in countries with some minimum level of democracy. We discuss this topic further in the next section.

Political Institutions Theory Political institutions can be viewed as setting the rules of the game. These rules influence the incentives of all actors including policymakers, voters, and lobby groups. Thus, they help determine policy outcomes. The literature has compared the effects on environmental policies of various political, electoral, and legal institutions. Examples include comparisons of parliamentary systems versus presidential-congressional systems, majoritarian versus proportional systems, closed- versus open-party lists, and civil versus common law. There are different views on the implications of political institutions for policy outcomes. According to one view, in a parliamentary system of government the ministers of the executive branch are accountable to the legislature, such that the executive and legislative branches are intertwined. To stay in power, the legislative majority must keep a potentially unstable coalition together. Parliamentary systems have a lower degree of separation of powers and a higher level of legislative cohesion (tendency to vote along party lines) than presidential-congressional systems. Thus, in parliamentary regimes there is a relatively low tendency to create opposing interests and incentives among legislators. The survival of coalition governments in parliamentary systems is the result of complex bargaining processes among parties. The rules governing legislative no-confidence votes in parliamentary systems and the procedures to be followed after the dissolution of government are crucial factors influencing the degree of legislative cohesion. Legislative cohesion is enhanced by the presence of the vote of investiture. This implies that a vote of confidence has to be passed for the government to legally assume office, rather than the government simply being appointed by the head of state. Legislative cohesion tends to lead to higher taxes, including higher pollution taxes, more redistribution, and greater rents captured by politicians. Voters in both parliamentary and presidential-congressional regimes have an incentive to limit the tax burden. For voter groups with low environmental concerns in particular, this includes taxes that address negative pollution externalities, such as the gasoline tax. The separation of powers in presidential-congressional regimes enables voters to more effectively hold politicians accountable. Executive powers are concentrated in a single political office, which voters can more easily discipline. The powers to propose a tax, to propose the allocation of the generated tax revenues, and to veto legislation, are allocated to politicians in different positions. Thus conflicts of interest are created. Checks and balances are provided by the separation of powers of the executive and the legislature. This leads to weaker environmental tax policies because large groups of voters prefer low taxes. An alternative view is provided by selectorate theory, which argues that the size of the winning coalition (the constituency supporting the government) depends crucially on the political institutions in place. According to this view, presidential systems produce larger winning coalitions than parliamentary systems, leading to greater amounts of public goods under the former system. Under majoritarian (first-past-the-post) electoral rule, the party receiving the greatest number of votes within a district wins each district’s seat; under proportional rule, the seats in the legislature are allocated according to the overall received share of votes (provincial or national). Thus, under majoritarian systems, political parties may chose to focus on the welfare of only a subset of the population rather than maximizing aggregate national welfare. Consequently, politicians in majoritarian systems have weaker

Democracy, Political Institutions, and Environmental Policy


incentives to enact stringent environmental policies that address national environmental concerns involving cross-district pollution damage. A “majority-bias” may emerge at either the national or the state level if the ruling majority party strongly favors its own members’ home districts. For example, the majority party may decide to distort environmental policies by setting weaker policies in majority districts but strict policies in minority districts. This has implications for whether environmental policy should be decentralized to the state or local level, and whether federal policies should be uniform across all states or be allowed to vary between locations. In particular, restricting federal legislation to be uniform across all districts would avoid sub-optimal policies distorted by majority bias, according to this argument. Alternatively, if political parties mainly consider environmental hazards faced by the population in pivotal districts, industry lobby groups may be relatively more influential under a majoritarian system and thus able to obtain less stringent environmental policies than under a proportional system. In a proportional system, on the other hand, political parties may be expected to consider the welfare of the entire electorate to a greater degree. More voters translate more directly into greater representation in the legislature. This induces political parties to pay greater attention to issues that are regional or national in scope, such as transboundary pollution. Moreover, proportional electoral systems generate more political parties in the legislature. This may open the door to green parties with a strong environmental focus to enter the legislature. This entry affects environmental policy outcomes in important ways, particularly if the green party gains a pivotal role. Political institutions that affect the degree of party discipline also have the power to influence environmental policies. The level of party discipline may be defined as the degree to which elected legislators vote according to the party’s campaign platform. For example, in a closed-list system, party leaders have the right to determine the position on the ballot of the party’s electoral candidates. This is in contrast to systems in which citizens chose among different individual candidates who may freely enter the race. Closed-list systems give party leaders an important tool to punish legislators’ deviations from the party line and reward party loyalty. Party leaders are in a good position to determine legislators’ re-election probabilities with their choice of positions on the party’s candidate list. Thus, the degree of party discipline rises under a closed-list party list, and shifts policy decisions to the national level, away from the local constituency’s more narrow interests. If national party leaders have the party’s overall electoral future in mind, they will be more likely to promote environmental policies that address pollution spillovers across political districts. Party strength, defined as the extent to which a national governing party is well-organized and well-financed, similarly concentrates policymaking to the national level. The literature also analyses the role of the organization of legislatures for environmental policy outcomes, in particular biversus uni-cameralism. Bicameralism yields a greater number of veto players, where a veto player is defined as an independent institution with veto power over policy, such as an independent legislative chamber. Such a veto player is assumed to require some form of compensation for moving policy away from the welfare maximizing level. A greater number of veto players raises industry and environmental lobby groups’ costs, inducing lobby groups to scale back on campaign contributions or bribes. A higher number of veto players will thus be associated with policies that are closer to the optimal levels. Veto players are important in the formation of international environmental agreements (IEAs), which are often a two-level game. During the negotiation round, the executive may initially commit the country to participate in the IEA. However, the domestic legislature(s) need to ratify the agreement, at which time it may be vetoed. Upon ratification, domestic legislation must then be enacted. Political instability (the probability that government policymakers are removed from office) is also an important determinant of environmental policy outcomes, deforestation, and resource extraction rates. Research has found several interaction effects, including between political instability and corruption, and political instability and party discipline and strength. For example, political instability weakens environmental regulations if the level of corruption is low, but actually strengthens regulations when the degree of corruption is high. This is because political instability has two partial effects. Bribery becomes less attractive to industry interests with a lower probability that the government will remain in office and deliver a favorable policy. This effect is more pronounced when the level of corruption is high. This effect is counterbalanced by the government’s relatively greater valuation of bribes as it becomes less likely to benefit from delivering welfare. This effect is the greatest when the degree of corruption is low. Corruption may also affect the level of political stability. Suppose a corrupt incumbent extracts bribes by letting private companies convert too much forest to agricultural lands, or dump too much wastes into a river. The bribes may increase his chances to stay in power against a green challenger: the larger the bribes, the more money he can spend for his reelection campaign. This effect might discourage less corrupt potential candidates to enter the contest in the first place. Nevertheless, if corruption implies an inefficient use of natural resources and lower social welfare, it may increase the chances of the green challenger. Legal Origins Theory suggests that the differences between British common law and French civil law are important for understanding regulatory outcomes across countries, and this applies to environmental policies. First, civil law favors government regulation to solve social problems, rather than market solutions and judicial resolutions of private disputes as emphasized by common law. Second, the more centralized state system created by civil law is likely to take transboundary pollution into account to a greater extent than a decentralized system. These main differences suggest that civil law countries are likely to set stricter environmental policies than common law countries. This does not necessarily imply that civil law regulations are more efficient, however.

Empirical Evidence The literature contains conflicting evidence on the effect of governance systems, similar to the contrasting theoretical predictions. Evidence suggests that parliamentary systems have higher gasoline taxes but lower air quality (higher SO2 levels) than do


Democracy, Political Institutions, and Environmental Policy

presidential-congressional systems. Some research indicates that the positive effect of democracy on environmental policy, as reported in the most of the literature, is primarily driven by the parliamentary democracies. In fact, some evidence suggests that presidential-congressional systems frequently set environmental policies that are not significantly different from those set by autocracies, everything else equal. The literature reports evidence that environmental policies are more stringent in parliamentary systems where the investiture vote is used. Thus, legislative cohesion may be an underlying driving force behind why parliamentary systems set stricter environmental policies. Democracies with proportional electoral rules tend to set stricter environmental policies than do majoritarian electoral systems. However, CO2 emissions are found to be higher in OECD countries the more parties are in government. The empirical literature also suggests that an interaction effect exists between closed-list voting systems (which yields high party discipline) and the level of corruption. Higher party discipline tends to raise environmental policy stringency when the level of corruption is low but reduce stringency when the degree of corruption is high. The latter effect occurs because corrupt national party leaders will enforce votes for weaker environmental policies among legislators. Moreover, the literature reports that bicameralism (involving an additional veto player compared to unicameralism) tends to have a positive effect on policy stringency in countries with relatively low levels of corruption. Political stability has been found to weaken environmental standards in the agricultural sector when the level of corruption is low, but strengthen these standards when corruption is endemic. Similarly, political instability, party discipline and party strength are found to be joint determinants of environmental policy outcomes. Moreover, the high turnover of local Chinese politicians shortens their time horizons and causes them to choose weak environmental policies. The institution of term limits for U.S. governors also affects policymaking. Governors change their environmental spending when they are no longer held accountable by voters, in particular when facing strong political competition and slim electoral vote margins. Researchers report that in former colonies (to which legal systems were transplanted in a relatively exogenous fashion), French Civil law legal heritage is associated with stricter climate change policies than British Common law.

Conclusion This chapter has reviewed the theoretical and empirical literatures on democracy, political institutions and the environment. While a majority of the literature suggests that an increased level of democracy is associated with stricter environmental policies and improved environmental quality, there is some indication that the relationship may sometimes be the reverse. Research on the effects of political institutions on environmental policies has focused on comparing different governance systems, electoral regimes, and ballot structures across countries. This is an expanding field where much remains to be done. Insights from this literature may prove useful also for other research questions where the endogenous determination of environmental policy is of importance, such as studies of the pollution-haven hypothesis.

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