Abstract
Coase shows how costly resources are (re)allocated via costly institutions, and that transaction costs must therefore be positive. However, Coase did not elaborate on transitions between institutions which incur positive transaction costs that are characterized by numerous institutional complementarities; that is, feedback loops that inform the need for, and pathways toward, institutional change. Economic investigations of complementary modes of (re)allocation are rarely undertaken, let alone studies of transitions between modes. However, modes of (re)allocation that achieve similar results at less cost are generally viewed as having production-raising value. This paper measures the costs of transitioning drought management institutions in Italy toward informal, participatory, and consensus-based approaches during several recent drought events. The chosen model is Drought Steering Committees, which offer a substitute for current formal (less flexible) planning approaches, and where lower transaction costs that are associated with the transition are inferred. Our results highlight the relevance of empirical assessments of ‘costly’ transitions based on a historical study of transaction costs, as well as supporting previous works that highlight the value of contextual analysis in economic studies, in order to identify the benefits of institutional investment.
Highlights
Water, an essential resource, is becoming increasingly scarce and costly worldwide [1]
The results from our analysis of the collected data offers a novel contribution to the transaction cost literature by: (i) applying ex-ante and ex-post transaction cost measurement to informal water governance institutions, (ii) providing evidence in support of the usefulness of measuring transaction costs for evaluating institutional transition or substitution objectives, (iii) highlighting the relevance and value of historical context for economic investigations; and, (iv) showing how informal institutions may underpin water governance/management arrangements to lower total transaction costs related to drought management in an EU context
This paper explores the transaction costs that are associated with a historical transition toward informal drought management arrangements in the Po River Basin (PRB) of northern Italy
Summary
An essential resource, is becoming increasingly scarce and costly worldwide [1]. Two overarching institutional categories coexist in water resources management: (1) formal institutions, which are established and communicated through channels that are widely accepted as official, such as laws and regulations enforced by authorities and (2) informal institutions, where the social rules, customs, traditions, or codes of conduct are part of the culture and ideology [5]. In both cases, these institution types distribute power to differentially constrain and enable actors and facilitate or limit the response(s) of individuals and communities to climate hazards, Water 2020, 12, 1866; doi:10.3390/w12071866 www.mdpi.com/journal/water
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