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History, Statics and Options: Transaction Costs in Institutional Change for Water Resources

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  • Challen, Ray
  • Schilizzi, Steven

Abstract

Institutions for use of natural resources, including water resources, typically encompass assignments of property rights to various levels of government, private entities and commonproperty organisations. Institutional reform often involves a change in these property rights, such as devolution of property rights from governments to private resource users. In institutional economics it is generally accepted that institutional change occurs to reduce transaction costs incurred in economic exchanges and regulatory actions. In many situations, including reform of institutions for use of water resources, there are two additional parameters that affect, or should affect, decisions for institutional change: (i) constraints arising from institutional history; and (ii) option values associated with some institutional structures under conditions of uncertainty about the future. In this paper, a transaction-cost framework is used to incorporate these parameters into decision-making for institutional change. Institutional reform for water use in the Murray-Darling Basin is used as an illustrative example.

Suggested Citation

  • Challen, Ray & Schilizzi, Steven, 1999. "History, Statics and Options: Transaction Costs in Institutional Change for Water Resources," 1999 Conference (43th), January 20-22, 1999, Christchurch, New Zealand 123793, Australian Agricultural and Resource Economics Society.
    • Handle: RePEc:ags:aare99:123793
    DOI: 10.22004/ag.econ.123793
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    References listed on IDEAS

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    1. Williamson, Oliver E, 1979. "Transaction-Cost Economics: The Governance of Contractural Relations," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 233-261, October.
    2. Stevenson,Glenn G., 1991. "Common Property Economics," Cambridge Books, Cambridge University Press, number 9780521384414.
    3. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132-132.
    4. Ronald C. Griffin, 1991. "The Welfare Analytics of Transaction Costs, Externalities, and Institutional Choice," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 73(3), pages 601-614.
    5. Kenneth J. Arrow & Anthony C. Fisher, 1974. "Environmental Preservation, Uncertainty, and Irreversibility," The Quarterly Journal of Economics, Oxford University Press, vol. 88(2), pages 312-319.
    6. K. K. Lancaster, 2010. "A New Approach to Consumer Theory," Levine's Working Paper Archive 1385, David K. Levine.
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    Cited by:

    1. Crase, Lin & Dollery, Brian & Lockwood, Michael, 2001. "Towards an Understanding of Static Transaction Costs in the NSW Permanent Water Market: An Application of Choice Modelling," 2001 Conference (45th), January 23-25, 2001, Adelaide, Australia 125588, Australian Agricultural and Resource Economics Society.
    2. Crase, Lin & Khosroshahi, Saeideh & Cooper, Bethany, 2020. "Hydrology, topography and demography matter: Why care needs to be exercised when assessing water prices and regulation and the extent to which they conform with best practice," Utilities Policy, Elsevier, vol. 62(C).
    3. Crase, Lin & Dollery, Brian & Lockwood, Michael, 2002. "Transaction Costs and Welfare in the Permanent Water Market in NSW," 2002 Conference (46th), February 13-15, 2002, Canberra, Australia 125076, Australian Agricultural and Resource Economics Society.

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