Environmental Engineering Reference
In-Depth Information
to measure. From the theoretical framework, it revealed that protecting
the relationship of the contracting parties from opportunistic behaviour
(as well as uncertainty, opportunism, asset specii city and frequency)
justii es the existence of an appropriate governance structure. Therefore,
governance structures of er various remedies for protection against the
uncertainty and opportunism of economic relations. As pointed out
by Pelletier-Fleury et al. (1997, p.5), 'exchange requiring investment in
specii c assets, in a context of uncertainty and strong information asym-
metries, justii es the recourse to vertical integration as opposed to market
coordination, as this allows transaction costs to be contained'. Moreover,
particular types of transaction are thus handled under particular govern-
ance structures depending on the relative costs of production and transac-
tion (Pelletier-Fleury et al., 1997).
Transaction costs and collective action
At this point, it became clear that resource users enter into various kinds
of explicit and implicit agreements (contracts) in order to initiate collective
action or agree to exchange or transfer goods or services. The process of
contracting involves two parties agreeing to ex ante and ex post situations
and these contributions will be in the form of negotiation, monitoring and
enforcement, where substantial amounts of costs are incurred. Ex ante
costs involve the search costs of i nding partners, setting up the agreement
and costs incurred negotiating with the potential partners. Ex post costs
are needed to ensure that exchange is carried out, or monitoring and if
necessary enforcing its performance. Hanna (1995) describes four dif erent
resource management stages in which variable transaction costs are inevi-
table. These four dif erent stages are: (1) the description of the resource
context, (2) regulatory design, (3) implementation and (4) enforcement of
agreed-upon rules. Description of the resource context includes a descrip-
tion of resource users, processors, markets and the analysis of associated
socioeconomic characteristics. Designing the regulation requires informa-
tion describing the resource context, which in turn depends on the quality
of contextual information provided. Implementation of a regulation is a
critical test of a regulation's i t to its contexts. Monitoring and enforce-
ment of a regulation is the i nal area of transaction costs. Monitoring com-
pliance with regulations will be excessively costly if monitoring systems are
not designed to be consistent with resource dynamics or a user's operation
(Hanna, 1995).
Despite the inevitability of transaction costs of resource management,
at this stage I would like to point out that empirical discussion regarding
transaction costs associated with dif erent forms of governance structure
is very sparse. Some scholars argued that the costs of privatization of
