The Analysis of Transaction Costs in Water Policy Implementation in South Africa: Trends, Determinants and Economic Implications

Abstract

Water is a complex economic good. It requires optimal management to control rising scarcity and competition for use. South Africa like many other parts of the world is in the process of implementing market-based water policy reforms to attain equity, efficiency, and sustainability in water use. However, these reforms have not been entirely successful and water allocation problems persist. This could be due to many contributing factors, certainly, but this paper narrows down to identify possible transaction costs that would arise from the policy process. Transaction costs can be great hindrances to policy formation and implementation especially if they constitute a large component of total policy costs. However, transaction costs remain generally unmeasured and this study fills in this gap for the Olifants basin of South Africa. Specifically, the study identifies and quantifies transaction costs incurred by various stakeholders in the water policy process in the Olifants basin in South Africa. Further, determinants of irrigation farmers’ transaction costs are assessed using regression approaches. Results from this study allow evaluating existing policies ex-post for improvement purposes.

Inequality and transaction costs in a community-based water supply in rural area adjacent to national park

“…Many studies have widely described transaction costs addressing water management, water market, and policy on water (Deng et al, 2018;Njiraini et al, 2017;Zhang et al, 2013). Arifin (2006) explicitly described the transaction costs of the upstream and downstream relations in community-based forest and water management in protected areas.…”

Water security and environmental security in a national and regional context: envisioning environmental diplomacy for cooperation

“…According to the World Wildlife Fund for Nature, 30% of fish stocks and 50% of freshwater of wetlands have decreased in the last century (WWF, 2015). Besides, water is a well-known economic good, and contemporary use of every drop of water should contribute to the economy (Njiraini et al, 2017). The demand and supply balance of water in various sectors (agriculture, industry, commercial, domestic, and environment) is a core component of development, economic growth, water, and environmental security (Hoekstra, 2016).…”

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

“…At the organization level, the collection of these data imposes further costs, resulting in few examples of consistent TC data collection over a period to allow for empirical analysis. Consequently, most research has been unable to empirically account for TCs when evaluating public institutions (Furubotn & Richter, 2005), and very few studies investigate the impact of TCs on the success or failure of public policy/programs (Njiraini et al, 2017). (Mettepenningen et al, 2011).…”

“…Mettepenningen et al () provide a useful paper on public TC measurement, but they do not collect empirical data. Njiraini et al () partially quantify the private and public TCs for water policy implementation in South Africa, but with a reduced focus on ex‐post static TCs (i.e., contracting, administration, monitoring, and enforcement costs). Conversely, Pannell et al () partially analyze the ex‐ante public TCs of implementing an Australian water salinity management program using a cross‐sectional database ( n = 1728 funded projects).…”