Environmental Engineering Reference
In-Depth Information
structures associated with dif erent management regimes and their associ-
ated transaction costs (Kant, 2000).
Transaction costs, governance structures and natural resource management
In the previous sections, I have discussed the underlying theory of trans-
action costs and its relevance to the natural resource sector. I now turn
to appropriate governance structures for natural resource management
from the perspective of transaction cost economics. Menard (2000, p. 240)
points out that 'variability in contractual arrangements results from the
necessity of setting up and monitoring transactions that have distinctive
characteristics, particularly with regard to the degree of uncertainty of the
environment in which transactions take place and to the degree of specii -
city of assets that they mobilize'. Indeed, the dif erent conditions demand
dif ering governance structures (enforcement procedures) in managing the
CPRs if the so-called tragedy of the commons is to be avoided. Drawing
heavily on Birner and Wittmer (2000), to which I return below, I shall of er
some explanation of how to go about choosing ei cient governance struc-
tures for CPR management. I have made clear that asset specii city and
uncertainty provide the basis for selecting appropriate governance struc-
tures. In the view of Menard (2000, pp. 240-41), 'while specii city of assets
plays a predominant role in the search for an ei cient governance struc-
ture, uncertainty is the key factor in choosing the enforcement procedures
of contractual arrangements'. Though I will not go further on uncertainty
and asset specii city issues (see Williamson, 1985 for more detail), I will
review the literature that uses the analytical apparatus of transaction cost
economics, which helps to understand the type of appropriate governance
structure for natural resource management.
Birner and Wittmer (2000) divided transaction costs of natural resource
management into two dif erent parts: transaction costs of decision-making
(
TC
D
) and transaction costs to implement those decisions (
TC
I
). The
decision costs (
TC
D
) are incurred during the process of acquiring various
information prerequisite to making appropriate decisions and include
costs of coordinating activities, such as resources spent on meetings, set-
tling conl icts and costs arising due to delayed decisions. Transaction costs
of implementation (
TC
I
) are inl uenced by the incentives of those carrying
out implementation activities to comply with the management decision
made, the presence of asymmetrical information and the measurability
of the outcome, the possibilities to use social control for monitoring and
the damage caused in the case of non-compliance (Birner and Wittmer,
2000). The economics literature suggests that the incentive for compliance
depends on direct benei ts from compliance as compared with defection.
Moreover, the incentive for compliance is also inl uenced by the value that
