Chapter VIII.9: Transaction costs considerations in instrument choice, design, and implementation

Abstract

Transaction costs relating to environmental policy can be thought of as the time and other resources used to establish, transfer, and enforce property rights. Transaction costs are important for environmental and natural resource issues, but especially so in the case of nonpoint source pollution. These costs need to be considered in the choice of both environmental policy instruments and the design of those instruments. The determinants of transaction cost magnitudes include both physical and institutional factors, for example the geographical scope of the problem as well as the existing laws. Incorporation of insights from the analysis of transaction costs leads to the consideration of pragmatic issues in the design of policy instruments. It also highlights the interdisciplinary nature of environmental and natural resource policy.