Institutions, Transaction Costs, and Environmental Policy

Book excerpt: 'This is an excellent piece of work, applying the economic theory of property rights and transaction costs to the complex policy problems associated with water use in irrigation. Challen examines the determination of transaction costs and the way they interact with a realistic specification of property rights. He thereby avoids the two main defects found in much work in this area: first, the use of a simplistic division of property rights schemes, for example one based on polar categories of private property and common property, defined to mean open access, and second, a tendency to use the category of transaction costs as an unexamined "black box".' - John Quiggin, James Cook University, Australia 'A most encouraging trend in economics concerns the careful and non-teleological study of institutions. From an era in which institutions were completely ignored, through an era in which it was thought that institutions were mere constraints on otherwise beneficent behavior in markets, through an era in which it was thought that the purpose of institutions was to promote economic efficiency, we now seem to be firmly in an era in which it is understood that institutions are the very bedrock of economic and social interaction. The analysis of institutions will fall into incoherence if we insist on seeing them as teleological rather than as instrumental. Once there, we must still understand the purposes that different individuals and collectivities ascribe to particular institutional set ups. In this careful book Ray Challen offers clear conceptual guidance to the study of economic institutions. He also shows us how one can undertake the analysis of institutional choice. The problem setting is water resources in eastern Australia. The lessons are profoundly international, and the approach is refreshingly promising.' - Daniel W. Bromley, University of Wisconsin-Madison, US Conventional economic analysis of property rights in natural resources is too narrow and restrictive to allow for effective comparisons between alternative institutional structures. In this book, a conceptual framework is developed for the analysis of these structures with illustrative application to the allocation of water resources.