Water Trading, Transaction Costs and Transboundary Governance in the Western US and Australia
Chapter 2: Water allocation and institutional change in a transaction costs world: an analytical framework
In this chapter, I frame the challenge of water allocation in a world of positive and often substantial transaction costs. Multiple theoretical traditions have examined the relationship between transaction costs and institutional change in natural resource allocation, including four Nobel laureates in the last 25 years: Coase, Williamson, Ostrom and North. Although each offers an important perspective, none is sufficient on its own to understand the evolution and performance of water allocation policy. Blending perspectives from Coase, Williamson, North and Ostrom (C-WON), allows the analyst to embrace complexity and elaborate a new calculus of institutional change for individuals and a ‘winning coalition’ needed for market-oriented water rights reform and river basin governance. This analytical perspective uses transactions as units of analysis, establishes models and typologies of transaction costs and institutional change, and enables the measurement and evaluation of institutional reforms in terms of adaptive efficiency, requiring ongoing institutional transitions to solve wicked water allocation problems in a path dependent world.
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