Diversification of strategic uncertainties in the business of environmental policy

Abstract

Strategic uncertainties are frequently encountered in policy situations. The behavior of actors in policy networks is often unpredictable, while the success of a given actor may depend on decisions of other actors. It seems rational to presume that strategic risks are taken into consideration besides expected outcomes in policy decision making. In the present paper we outline an analogy between stock markets and policy situations. It is conjectured that similarly to stockholders who diversify their portfolios to maximize expected returns at a given level of riskiness, policy actors also evaluate the diversity of their 'portfolio of relations' and tune the assumed risks in individual relationships accordingly. The main hypothesis of the paper is that if the number of relationships grows (viz. unpredictable variations in partners' behavior increasingly compensate each other), policy actors will assume greater risks in individual relations. Thus, we surmise that strategic risks can be diversified by relationship portfolios. A survey of Hungarian environmental NGOs was carried out to prove the hypothesis. Statistical results confirmed our assumption at the 99% confidence level. To our knowledge, this is the first direct evidence that the boldness of a policy strategy depends on the number of partners. More generally, the novelty of the present work lies in the useful analogy between stock markets and an environmental policy situation, and the demonstrated connection between the number of partners and the assumed strategic risks. © 2008 Periodica Polytechnica.