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.