An Institutional Perspective on Externalities.The Nordic Wolf Re-Colonization

The paper discusses and redefines the traditional concept of externalities. Inspired by J.R. Commons' theory of institutional evolution we define externalities as policy relevant institutional interdependencies. Our concept of externalities is more general and reflects institutional failure rather than market failure. We exemplify our institutional concept of externalities by discussing the conflicts associated with the re-colonization of wolves in Scandinavia. Pinpointing the conflict between wolf management and sheep farming, we identify externalities in the de jure property rights to the pastures, and discuss how they can be internalized.