An Analysis of the Housing Redevelopment Process in Korea through the Lens of the Transaction Cost Framework

Abstract

This paper applies the transaction cost framework to the analysis of the housing redevelopment process in Korea. The housing redevelopment process involves various identifiable transactions and cost-incurring hazards which originate from uncertainty about development potential and effects, interdependencies and the consequent strategic behaviours of relevant parties. Responding to the characteristics of the transactions and hazards, various forms of governance structure are institutionalised. The extant governance mechanisms fit neither perfect market nor pure hierarchy. Rather, hybrid forms of governance spanning the public and private spheres are aligned with the relevant transactions. On the other hand, a remediableness test indicates that different governance mechanisms which seem more efficient than the current ones can be identified for each stage of housing redevelopment. This finding marks a superb potential of the transaction cost approach for assessing institutional efficiency that the Pigouvian approach does not have.