Transaction costs

From Geography

Revision as of 18:07, 23 October 2012

General understanding: definition of transaction costs

The transaction cost theory is derived from economics. North (in Sager, 2006) defines transaction costs as "the costs of information, as well as measuring the valuable attributes of what is being exchanged and the costs of protecting rights and policing and enforcing agreements" (p. 225). Next to that, Sager (2006) indicates that "transaction costs are not directly related to the technical production and consumption of what is being exchanged" (p. 225). So, transaction costs are about the exchange of arguments and information and not about the construction of arguments itself.

Application of the transaction cost theory to critical communicative planning

The transaction cost theory can be applied to public planning and Sager applies the theory to critical communicative planning (which contains lots of ideas that are derived from Jürgen Habermas's critical theory of communicative action). This type of planning "maximizes the likelihood of increasing the transaction costs of repressive groups to such a degree that the needs of all involved parties are accomodated" (Sager, 2006, p. 225).

If you want to analyze communicative planning, it is important to take into acount that the exchange of arguments leads, whether an agreement is reached at the and or not, to transaction costs. Examples of transaction costs are arguing and the monitoring of agreements (Sager, 2006, p. 230). Dixit (in Sager, 2006, p. 233) identifies three main sources of transaction costs:

• Asymmetric information

Thich means that not every party has the same ammount of information about the planning process. This leads to strategic actions, which can lead to higher transaction costs;

• Opportunism

Opportunism relates to the fact that parties are going for their own (short-term) gains;

• Asset specificy

With asset specificy it is meant that investment in the asset will only pay off in the relationship with one specific transacting party (Sager, 2006, p. 233). This makes that the investement could be 'rigid'. The investment will ony pay off in the relation with one specific actor. Regarding other actors, there might even be a contradictive relationship.

The application of transaction cost theory to critical communicative planning becomes very clear in the following citation (Sager, 2006, p. 236):

The transaction cost alteration rationale for critical communicative planning states that the attainment of a dialogical process, which is more likely to result in an outcome accomodating the needs of all involved parties, requires the planner to augment the political transaction costs of those who rely on power rather than reason in arguing for self-serving plans, and to reduce the transaction costs of those arguing for fair plans without misrepresenting or using manipulatory stratagems.

The transaction costs can be altered in different kinds of ways, for example by questioning or improving dialogue (Sager, 2006, p. 237).

Examples and cases

A practical example of these three sources is outlined by Tore Sager (2006, p. 233-234). Sager (2006, p. 237-242)shows in an interesting case study about Trondheim in Norway the way in which transaction costs are applied to critical communicative planning in practice. Next to that, Sager shows in his article that the transaction cost theory is much less applicable to consensus-oriented collaborative planning.

References

• Sager, T. (2006). The Logic of Critical Communicative Planning: Transaction Cost Alteration. In: Planning Theory. Vol. 5, No. 3: pp. 223-254.

Contributors

• Page created and edited by --JikkeVanTHof 18:16, 7 October 2011 (UTC)
• Page edited by--HennyLi 19:06, 23 October 2012 (CEST)