Salinity Management in the Murray‐Darling Basin: A Transaction Cost Study

Abstract

Transaction costs are fundamental to implementing, evaluating, and monitoring public policy/programs for social, economic, and/or environmental welfare. Empirical accounting for transaction costs helps identify and evaluate adaptive public policy or program arrangements that improve future institutional choices under uncertainty. However, examples of empirical transaction cost studies are few, due largely to persistent measurement challenges and limits to transaction cost comprehension. A lack of studies limits both insights into the importance of transaction costs in institutional design and validation of theories surrounding cost trajectories over time under different institutional arrangements. In this paper we apply time series analysis to a unique database of public salinity management program transaction costs in Australia's Murray‐Darling Basin. Our study provides insights into the role of transaction costs in institutional efficiency and on empirical approaches to considering relationships between observed transaction cost trajectories and the efficiency of associated institutions. Our results indicate that the Murray‐Darling Basin salinity management program succeeded in generating persistent declines in transaction costs and river salinity levels over time. We suggest some possible reasons for this that are associated with institutional design and reflect on what these findings may mean for other jurisdictions.

Measuring the Transaction Costs of Historical Shifts to Informal Drought Management Institutions in Italy

“…McCann et al [30] established a framework and typology for transaction costs measurement based on previous work from Thompson [48], which we follow in this study. The data collection approach is similar to that detailed in Loch and Gregg [49]. The main function of the DSC is to coordinate stakeholder participation and consensus in the wake of significant drought event periods.…”

“…All final transaction costs were then categorised into institutional transition (ex-ante) and static transaction (ex-post) costs, as per Table 2. Following the method adopted by Loch and Gregg [49], analyses were performed to identify: trends in each category over time, summed total transaction costs for the DSC, and comparisons between drought and non-drought periods. The following sections detail the results of the institutional mapping exercise, which assists in our assessment of whether the institutional transition achieved similar/improved outcomes, and subsequent transaction cost analysis to measure and assess the costs of that process.…”

“…For completeness, these measures would also have to include the lock-in cost impacts of institutional options to allow for a cost-effectiveness evaluation [14]. Similar to the work undertaken by Loch and Gregg [49], this would entail identifying and measuring three performance indicators over space and time: (1) how well the drought management objective(s) have been met; (2) the average transaction costs per unit of those met objective(s); and, (3) total program budgets. For adaptively efficient and robust institutions, these three performance indicators should be increasing, decreasing and sufficient respectively.…”

Estimating the economic benefits and costs of highly‐protected marine protected areas

“…Although recognition of, and interest in, transaction costs in natural resource programs and policies has increased in recent years (McCann , Pannell et al. , Loch and Gregg ), there are still relatively few studies that have measured these costs. To do so is challenging, as it requires detailed information about time taken by businesses to undertake MPA administration tasks, and about how these times change as a consequence of the MPA.…”

Navigating pathways to reform water policies in agriculture

“…Given these different scientific challenges, policy research remains critical in helping guide policy makers towards locally-tailored and effective solutions. Recent research approaches are aimed at combining hydrologic, soils, and agronomic models with farmer behavioural responses to help provide simulations of targeted or hotspot approaches (Garnache et al, 2016[120]; Liu et al, 2018 [121]). Preparing a reform in this area will benefit from recent knowledge to build on innovative ideas, while avoiding repeating past mistakes.…”