Local government consolidations: The impact of political transaction costs

Local government in Norway comprises a large number of small municipalities. Cost efficiency can be improved by consolidating local authorities, and central government has designed a framework to stimulate voluntary mergers. Existing theories suggest that political transaction costs will impede consolidations. (1) Generous grants compensate diseconomies of scale. Central government has promised small municipalities that grant levels will be maintained, but policy promises may not be credible. (2) Property rights to local revenues are nullified when consolidations have been implemented. High-revenue municipalities will therefore go against merger with a poorer neighbor. (3) A consolidated local council may be composed of different political parties, and it may therefore pursue other policies than an existing council. Expected changes in party strength can lead municipalities to oppose a proposed consolidation. (4) Senior politicians are less likely to support mergers, particularly if they come from small polities. We offer an explicit test of these propositions based on data for Norwegian local government. Elected politicians and administrative leaders are more interested in consolidating when efficiency gains are large. Local revenue disparities and to some extent dissimilar party preferences are significant impediments to voluntary mergers. Additionally, smaller municipalities are often prepared to sacrifice some efficiency gain to remain independent polities.     

The role of political parties: An analysis based on transaction costs

This paper explores the proposition that political parties reduce the ‘transaction costs’ of electoral participation. Political parties provide a low cost signal of a candidate's policies and personal characteristics and, in this way, reduce voters' information costs. With reference to ‘transaction cost economics’, political parties offer an ‘implicit contract’ between voters and politicians and thereby reduce the scope for opportunism by politicians. This impact on transaction costs is important in any evaluation of public policy towards political parties.     

Appropriation, violent enforcement, and transaction costs: a critical survey

This paper focuses on the extension of transaction costs to appropriative activity and coercive power in the property rights approach. It has been argued that including the costs of appropriation and violent enforcement in transaction costs is based on the assumption that Coaseian bargaining can be extended to any institutional scenario, i.e., voluntary as well as coercive exchange. However, voluntary transactions cannot capture the logic of coercive power. This means that the assumption of an efficient political market is not valid, and that the ??political Coase theorem?? lacks the logical consistency to provide a cornerstone for political theory.     

Electoral competition and the oversight game: A transaction cost approach and the Norwegian experience

Abstract. The central question addressed by this article is whether the absence of active competition changes the forces that shape the institutional landscape at the parliamentary level, and thereby the landscape itself. Based on a transaction cost approach, the study investigates whether the bolstering of parliamentary oversight procedures occurs in situations in which there is no credible alternative to the incumbent government, and whether opposition impotence contributes to the development of oversight institutions. The article argues that the strengthening of parliamentary oversight procedures is most likely to occur when there is a minority government but the opposition MPs are not in a position to form or envisage a credible alternative. An analysis of changes in oversight arrangements in Norway during 1993—1996 strongly supports this argument.     

FDI and the costs of contract enforcement in developing countries

This article examines the relationship between foreign direct investment and host countries’ contracting institutions, the rule systems which govern commercial transactions between private actors. Given their liability of foreignness and costly exit options, we suggest that multinational corporations have incentives to influence the formal contracting environment in host countries. Further, host governments are more likely to respond to multinationals’ wishes when they are more dependent on foreign capital markets. We draw on the World Bank’s Lex Mundi dataset (Djankov et al. 2003) on micro-level contracting environment for private actors. Our analysis of a cross section of 98 developing countries suggests that FDI is associated with lower contract enforcement costs, particularly when the host country is more indebted.     

Policy and regulatory design for developing countries: a mechanism design and transaction cost approach

The first-generation literature on policy design has made considerable contributions over the last 30 years to our understanding of the process, politics and implications of policy design and instrument choice. This literature, however, has generally treated institutions as a black box and has not developed a coherent set of frameworks, theories and models of how institutions matter to policy design. In this paper, I unpack the black box of institutions using transaction cost and mechanism design to show how regulations can be better designed in developing countries when institutions are weak, unaccountable, corrupted or not credible. Under these conditions, I show that efficient regulatory design has to minimize transaction costs, particularly agency problems, by having incentive compatible (self-enforcing) mechanisms. I conclude with a second-generation research agenda on regulatory design with implications for environmental, food and drug safety, healthcare and financial regulation in developing countries.     

Managing the fight against corruption: A case study

Corruption is one of the foremost problems facing policy-makers and managers in developing countries, but it is a remarkably difficult one to study. This case study—an actual episode that has been disguised to preserve confidentiality—provides a vehicle for illustrating both the application of analytical tools to corruption and the importance of practical issues of implementation and politics. The case suggests that anti-corruption policies should carefully assess (1) the relative severity of various kinds of illicit activities, including who gains and loses; (2) the relative susceptibility of the various activities to feasible changes in policies and procedures; and (3) the strategic importance of politics, in the narrow sense of bureaucratic politics as well as the wider political realities.     

Reduce transaction costs? Yes. Strengthen property rights? Maybe: The First Nations Land Management Act and economic development on Canadian Indian reserves

Economic development on Canadian Indian reserves is hindered by the fact that aboriginal peoples living on these reserves lack efficient and effective property rights. In 1999, the federal government passed the First Nations Land Management Act, which allows participating First Nations to develop their own land codes for administering their reserve lands. After analyzing two First Nation land codes in Ontario and Saskatchewan, this paper finds that land codes are effective mechanisms for addressing drag on on-reserve development.     

The contractual nature of budgeting: A transaction cost perspective on the design of budgeting institutions

Viewing budgets as contracts, transaction cost theory focuses on the costs of negotiating and enforcing the myriad political agreements by which policymakers allocate the government's resources. This essay provides an overview of transaction cost theory and its implications for the design of budgeting institutions. It contrasts the behavioral premises (bounded rationality and opportunism) of the transaction cost approach with those of more traditional budgetary theories, and examines whether commitment and agency costs have structured budget actors' institutional choices. Investigation of the usage of key budget instruments- entitlements, multi-year appropriations, and tax expenditures - suggests that Congress has been more discriminating in its institutional choices than is commonly supposed. Sensitivity to the importance of transaction costs would increase the effectiveness of budget reforms.     

Managing Nanotechnology Risks in Vulnerable Populations: A Case for Gender Diversity

Funded by the National Science Foundation and the National Nanotechnology Infrastructure Network (NNIN), this study asks qualitatively analyzes interviews with 48 nanoscientist users at four NNIN facilities. The main research questions were: (1) Do nanotechnologies pose unique social and ethical concerns?; (2) how are the risks associated with nanotechnology distributed among different human populations?; (3) what are specific policy steps that can be used to manage such risks? This study purposefully oversampled female scientists to correct for the historical underrepresentation of women in the nanotechnology workforce. By amplifying the voice of this science, technology, engineering, and mathematics (STEM) workforce minority, the policy discussion contained herein better reflects the concerns of the general population. The results, analyzed with the aid of qualitative data analysis software, yield interesting differences in risk characterization among the scientists and innovative policy suggestions for the nanoscience community and regulators alike.     

Managing Pluralism: The European Case

This article begins by clarifying the meanings attributed to pluralism; it then places the European case in a global context. The body of the article looks at the management of religious pluralism in Europe in terms of commonality and difference. At one and the same time, Europe is becoming increasingly secular and religiously plural—both trends are important if we are to understand the issues at stake. A close examination of four individual cases (Britain, France, the Netherlands and Greece) reveals, however, that it is important not to jump to conclusions regarding outcomes. Each country must be considered on its own terms. The final section introduces a rather different feature: the European Court of Human Rights, noting its place in the management of religious pluralism. A growing jurisprudence emanating from the Court is becoming increasingly influential.