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Abstract: Environmental policy instruments generate transaction costs to public and private parties. There is a growing literature reporting on the size of transaction costs produced by environmental policy instruments. This paper extends that literature through an analysis of the factors that influence transaction costs in environmental policy and how this influence occurs. The theory based factors that influence transaction costs are categorised as: 1) transaction characteristics; 2) transactor characteristics; 3) nature of the institutional environment; and 4) nature of the institutional arrangements. We examined how these factors influenced transaction costs through the analysis of two Australian-based development offset schemes with different policy designs. We found evidence of all four theory-based categories of influence in the policy case studies. The degree of influence and how each factor influenced transaction costs varies across the two policies and between parties. Policy design as a component of the institutional environment had a particularly large bearing on transaction costs of offset buyers and the policy administrator. An important contribution to transaction cost theory assumes the institutional environment as given. [Copyright &y& Elsevier]

Abstract: This study employs a comparative analysis of the transaction costs of alternative policy instruments. The institutional approach to the allocation of resources is emerging to supplement traditional analyses of market and government failures. The causes of these failures are many, but often point to high transaction costs that result largely from institutional impediments. Effective institutions can help reduce transaction costs through more effective signals and incentives, including information generation, to help markets function more efficiently and policies to be delivered more successfully. The study, which contributes to transaction costs measurement, finds that the magnitudes and types of transaction costs associated with setting up and implementing three greenhouse gas reduction policy programs in Australia are substantial and different. The estimated transaction costs of the Tradable Permit and Fee System are relatively high compared to those of the mandatory Fuel Label Program and the voluntary Fuel Efficiency Program, which supports the view that market-based policies can also be costly to deliver. Notwithstanding, transaction costs have frequently been ignored in cost–benefit analyses. It is concluded that transaction costs need to be considered alongside other costs and benefits in the assessment of policies. [Copyright &y& Elsevier]