Administrative Transaction Costs Research Articles

The Transaction Costs of the South African Levy– Grant System for Skills Development

In this article, I seek to explore the ratio between the administrative transaction costs faced by organisations in South Africa for claiming skills development grants and the grants that they achieve. This simple trade-off of costs versus gains is a key factor in whether firms choose to participate in the training-related activities targeted by this system. Anecdotal sources have claimed that excessive administrative costs have led firms to under-claim grants available to them. However, no prior empirical research exists on such costs, presenting a gap in the literature. Accordingly, in this article, I explore the proportion of administrative transaction costs to direct gains in 14 case studies of South African organisations regarding their 2016 activities and expenditures. The results found half of the firms studied to have costs in excess of direct gains from grants. The remaining firms exhibited extreme variability in the cost–gain ratio from very low to near parity. Some evidence suggests that larger firms may enjoy a slight cost–benefit advantage. This research provides some support for the claim that the levy–grant system for skills development may present many organisations with excessive costs compared to gains. The high levels of variability suggest that policymakers should consider cost structures carefully and mitigate policy instruments.

Grand Challenges Cannot Be Treated in Isolation

If not well understood, linkages among the grand challenges of poverty alleviation, environment protection, and climate mitigation could lead to paralyzed policies and even conflicting consequences. Quick changes need to happen at the institutional, societal, and scientific levels to maximize the synergy of addressing these challenges instead of treating them in isolation.

Determinants of the perceived administrative transaction costs caused by the uptake of an agri-environmental program

Farmers’ subjectively perceived that administrative transaction costs are of high importance for the uptake of agri-environmental programs with direct effects on the effectiveness and efficiency of these programs and the well-being of farmers. This paper empirically estimates private administrative transaction costs resulting from an uptake of the newly introduced grassland-based milk and meat program in Switzerland, based on farmers’ perceived administrative workload. Using ordered logit models, we analyze how the administrative tasks and farm and farmer characteristics influence the perceived administrative workload. We find that the time spent on monitoring or inspection tasks has no effect. In contrast, an outsourcing of program-related administrative tasks significantly reduces the perceived administrative workload. We also find that a better understanding of agricultural policy regulations significantly reduces the farmers’ perceived administrative workload. We recommend that public administration improve the communication of agricultural policy regulations, rather than investing in the simplification of administrative forms.

Using the Variation in Transaction Costs to Explain the Propensity to Patent: Some Firm-Level Evidence

Do lower transaction costs induce innovation? We exploit the variation in transaction costs across firms and countries to explain the firm-level propensity to innovate. Drawing on a large dataset from European Patent Office (EPO) covering over 15,000 firms from 100 countries over the period 1991-2015, we compute the conditional probabilities of individual firms to acquire a valid based on the validation outcomes and examine whether lower transaction costs encourage firm-level innovation. Our empirical strategy addresses firm-level idiosyncrasies, country-level unobserved effects and common technology shocks that potentially invoke omitted variable bias in the effects of transaction costs on the propensity to patent. Numerous indicators of transaction costs are clustered into four specific categories: (i) Shleifer-La Porta (administrative), (ii) Northian (cross-border), (iii) Coasean (procedural & contractual) and (iv) Williamsonian (intra-firm). Our investigation reveals that higher transaction costs systematically account for the failure of firms to acquire a valid patent and to innovate. The results plausibly indicate that higher costs across firms and countries are associated with a marked drop in firm-level propensity to patent. Controlling for unobserved heterogeneity across firms, we employ the negative binomial model to examine the contribution of transaction costs to firm-level patenting propensities. The evidence suggests that not all transaction costs are created equal. Higher administrative transaction costs are associated with persistently higher number of valid patents as such costs tend to address moral hazard, opportunistic behavior and other sources of asymmetric information and potentially deter copy-cat imitating firms from entry. On the other hand, decreasing cross-border, procedural and intra-firm transaction costs leads to consistently higher number of valid patents being granted. The estimated propensities to patent are further tested using extreme bounds analysis by running more than 13 million combinations of the core regression model which confirms the importance of transaction costs in explaining differential propensities to patent across firms and countries.

The impact of administrative transaction costs in the EU emissions trading system

This article empirically investigates the impact of transaction costs for monitoring, reporting, and verification (MRV) of emissions on companies regulated by the EU Emissions Trading System (EU ETS) in Germany. Based on a unique panel dataset, we investigate if MRV costs are dependent on the amount of annual emissions of regulated companies and if there are differences in transaction costs between economic sectors. The results indicate that administrative costs are dependent on the amount of annual emissions for larger companies, which has implications for the economic efficiency of the EU ETS. The most important finding, however, is that there are significant differences in MRV transaction costs dependent on the type and size of companies. This implies the existence of considerable economies of scale. Overall, the EU ETS could benefit from reforms by means of a push towards upstream regulation as this would likely increase administrative efficiency.Policy relevance statementTransaction costs are, among other things, an important aspect of market-based climate policy design. A policy instrument with low transaction costs is preferred over instruments with larger transaction costs under equal conditions. This is occasionally referred to as administrative efficiency, and its importance was acknowledged in directive 2009/29/EC of the European Commission. Thoughtful empirical examination of transaction costs is essential in order to inform about the extent and impact of these costs. This article provides an analysis of transaction costs for monitoring, reporting, and verification (MRV) of emissions in the EU ETS. It is shown that administrative costs will likely have negative effects on the cost efficiency of the EU ETS. However, the most relevant finding is that small companies (<250 employees) or firms emitting small amounts of carbon dioxide per year face far higher average transaction costs compared with larger firms or emitters. Thus, there is a tendency for the EU ETS to cause MRV transaction costs that are disadvantageous for small companies. A regulation that is more upstream-oriented could mitigate this negative effect to some extent. The EU ETS could initiate a reform that is targeted on putting a price on the carbon content of fossil fuels instead of directly regulating emissions in a so-called ‘end-of-the-pipe’ way at the installation level.

The Impact of Administrative Transaction Costs in the EU Emissions Trading System

The Impact of Administrative Transaction Costs in the EU Emissions Trading System

Implementing EU co-financed agri-environmental schemes: Effects on administrative transaction costs in a regional grassland extensification scheme

Implementing agri-environmental schemes that are co-financed by the Common Agricultural Policy of the European Union require administrative compliance with several regulations. This affects the magnitude and composition of transaction costs incurred by agricultural administrations in terms of working time spent. Distinguishing between scheme-related tasks to achieve the environmental goals of the scheme and tasks necessary to obtain the EU reimbursement, this study investigates a possible trade-off in working time allocation with the help of a multi-task principal-agent conceptual framework. Agricultural county administrations of the German state of Hesse serve as case study. Results show that the highly specified reimbursement-related tasks require most of the administrations’ working time. However, several factors exist that enhance the provision of scheme-related tasks, foremost a higher share of professional farmers in the county and a certain level of staffing. Nonetheless, the study also reveals that part of the EU-related monitoring effort is fixed and thus increases per contract costs in counties with fewer participants. The findings suggest balancing the particular incentives to perform the required tasks. This is important as more standardised compliance duties are expected for the new funding period 2014–2020.

Dividend Neutrality with Transaction Costs

The author constructs an intertemporal model in which investors trade shares of a firm. All trading is done through competitive market makers. After the initial period and before the end of the planning horizon, information is asymmetrically distributed among traders, and the prices of investors who buy shares are higher than for those who sell shares. The presence of this deviation from the Walrasian paradigm notwithstanding, dividend policy does not affect the initial period's share price or shareholders' welfare. This result is robust to various extensions of the model. The author also considers fixed administrative transaction costs and shows that dividend policy is irrelevant in the presence of these transaction costs. Copyright 1990 by the University of Chicago.