On the ‘Efficient Boundaries of the State’: The Contribution of Transaction-Costs Economics to the Analysis of Decentralization and Devolution in Natural Resource Management

Abstract

Decentralization and devolution—also referred to as ‘rolling back the boundaries of the state’—are important policy trends in natural resource management. Drawing a parallel with the efficient-boundary problem in industrial organization, the authors show how transaction-costs economics can be applied to identify the efficient boundaries of the state in natural resource management. The following extensions of the transaction-cost framework are proposed: (1) introduction of care intensity and contest intensity as additional key attributes of transactions; (2) introduction of cooperative types of organization as a third governance structure besides market and hierarchies; and (3) introduction of natural resource characteristics, social capital, and state capability as contextual variables. The authors also discuss the possibilities for empirical application.