Factors that influence transaction costs of environmental policy : an analysis of development offsets

Abstract

New Institutional Economists define transaction costs as the costs to define, establish maintain and exchange property rights. This definition, one among many, enables the consideration of the cost to create, use and move between institutions (Marshall, 2013; McCann, 2013). For a policymaker, transaction costs are the cost of time and effort invested in researching the problem, creating, implementing, administering, monitoring and enforcing the policy. For an individual engaged with or affected by the policy, transaction costs are the cost of time and effort invested in learning about and interacting with the policy. Transaction costs of the policymaker have been reported to range from 1 to 110 per cent of the government payments for farm payment schemes (Rorstad et al., 2007). For the private landholder, transaction costs have been shown to be up to 15 per cent of the total cost of being involved in a policy (Mettepenningen & Van Huylenbroeck, 2009). Despite the extent of potential transaction costs to the government and private parties, transaction costs are rarely measured or included in policy planning or evaluation. Where transaction costs have been measured, the focus has been on environmental policies that involve government contracting private landholders to supply environmental outcomes over time (for example, Agri-Environmental Schemes). With a few exceptions, the focus has been on the transaction costs incurred by the government. There is even less information about what influences the scale of these transaction costs to either party to an environmental policy. Focusing on an environmental policy which operates to generate terrestrial conservation through the allocation of property rights and the facilitation of trade, the aim of this thesis is to address the gap in understanding about the factors that influence the scale of transaction costs to all parties in an environmental policy. The environmental policy focused upon is a development offset. Development offsets (referred to as offsets) are a form of environmental policy that allows development to impact on the environment provided that impact is mitigated on the development site, on another site (third-party offset) or in non-physical ways such that there is no net loss in the supply of environmental goods and services (Gibbons & Lindenmayer, 2007; Moilanen et al., 2009; Norton, 2009; ten Kate et al., 2004). Development offsets are explained in detail in chapter three. In chapter four the organisational economics literature and its critics as well as empirical measurement studies are reviewed to develop an understanding of what factors could influence the scale of transaction costs of all parties to an environmental policy. This review aids in forming a number of research questions which are presented in chapter five. These questions are investigated through semi-structured interviews with a number of informants involved in two offset applications occurring in Queensland, Australia (chapter six). Through the case study analysis, in chapter seven, it is revealed that the transaction costs of all parties to an offset are affected to some degree by the influencing factors that were revealed in the literature review. However some factors had a greater effect on transaction costs than others (policy design and asset specificity). Further, some parties appeared to bear greater transaction costs than others (offset buyers and the policy administrator). Whilst some factors are inevitable in an offset scheme (for example, site specificity), it is highlighted that policy rules and processes can reduce the transaction costs of buyers and the policy administrator. One potential transaction cost reducing design component is the more formalised inclusion of intermediaries in offset transactions. The role of intermediaries and how they can reduce transaction costs of offset buyers and sellers is explored in detail in chapter eight. Show more