Salinity Management in the Murray-Darling Basin: A Transaction Cost Study

Abstract

Transaction costs are fundamental to implementing, evaluating, and monitoring public policy/programs for social, economic, and/or environmental welfare. Empirical accounting for transaction costs helps identify and evaluate adaptive public policy or program arrangements that improve future institutional choices under uncertainty. However, examples of empirical transaction cost studies are few, due largely to persistent measurement challenges and limits to transaction cost comprehension. A lack of studies limits both insights into the importance of transaction costs in institutional design and validation of theories surrounding cost trajectories over time under different institutional arrangements. In this paper we apply time series analysis to a unique database of public salinity management program transaction costs in Australia's Murray-Darling Basin. Our study provides insights into the role of transaction costs in institutional efficiency and on empirical approaches to considering relationships between observed transaction cost trajectories and the efficiency of associated institutions. Our results indicate that the Murray-Darling Basin salinity management program succeeded in generating persistent declines in transaction costs and river salinity levels over time. We suggest some possible reasons for this that are associated with institutional design and reflect on what these findings may mean for other jurisdictions.