Transaction Cost Regulation

1 February 2011 at 3:03 pm Peter G. Klein Leave a comment

| Peter Klein |

At last year’s ISNIE conference in Stirling Pablo Spiller gave an excellent presidential address on “Transaction Cost Regulation,” the application of transaction cost economics to regulatory issues. The text of the address has now been released as an NBER Working Paper with the same name:

This paper discusses the fundamental underpinnings and some implications of transaction cost regulation (TCR), a framework to analyze the interaction between governments and investors fundamentally, but not exclusively, in utility industries. TCR sees regulation as the governance structure of these interactions, and thus, as in standard transaction cost economics, it places emphasis in understanding the nature of the hazards inherent to these interactions. The emphasis on transactional hazards requires a microanalytical perspective, where performance assessment is undertaken within the realm of possible institutional alternative. In that sense, politics becomes fundamental to understanding regulation as the governance of public / private interactions. The paper discusses two fundamental hazards and their organizational implications: governmental and third party opportunism. Both interact to make regulatory processes and outcomes more rigid, formalistic, and prone to conflict than envisioned by relational contracting.

You can see the slides from the ISNIE version here.