Improving environmental decisions: A transaction-costs story

A multidisciplinary team of researchers made efforts to influence the design and implementation of environmental policy in Australia. A focus of these efforts was the development of the Investment Framework for Environmental Resources (INFFER). In addition, the team undertook a range of communication activities, training, user support, and participation in committees and enquiries. Transaction costs were relevant to these efforts in a variety of ways. Environmental managers perceived INFFER to involve relatively high transaction costs. A balance was struck between the system having simplicity (and low transaction costs) and delivering environmental benefits. Transaction costs were factored into the planning and prioritisation processes developed. For example, public and private transaction costs are accounted for in the calculation of benefit:cost ratios and in the choice of policy mechanisms. There are diverse roles that transaction costs play in the processes of developing, implementing and influencing environmental policy programmes. A key observation is that appropriate strategic investment in transaction costs can improve decisions and increase net benefits from an environmental programme. A well-designed decision process can involve incurring transaction costs at one stage in order to save transaction costs at a later stage.

► Developing decision tools to influence environmental decisions involves various transaction costs. ► Some managers resist improved decision processes because they require increased transaction costs. ► Tools to prioritise projects should consider trade-offs between transaction costs and resulting environmental benefits. ► Transaction costs should be accounted for when calculating benefit:cost ratios and selecting policy mechanisms.