Institutional and transaction costs in natural resource management: a study from Jammu and Kashmir

For this study, the transaction costs have been grouped into two categories: (1) transition costs to establish and maintain a new institutional structure and (2) static transaction costs to carry out exchange within that institution. Due to the high costs of information collection, dissemination and communication, capacity building, and transport and logistics, the transition costs incurred on the establishment of a VDC (village development committee) have been higher than the transition costs incurred on its maintenance in a forested watershed as compared to an agricultural watershed. Static transaction costs incurred on decision-making for resource allocation were comparatively higher than the costs incurred on administering the VDC, because the new institutional structure was created in the existing local institutions. In this case too, the static transaction costs were comparatively higher in forested watersheds than in agricultural watersheds, except in the case of protecting ownership rights and developing contracts. The individual resource users have also incurred significant static transaction costs on attending meetings followed by travel costs. On the whole, participatory resource management is associated with high ex-ante and low ex-post transaction costs. User participation has helped in evolving cost-sharing mechanisms, which reduce the project cost of delivering interventions and monitoring the outcomes for sustainability. Thus, the institutional change is not ‘cost-less’ or instant, but the potential costs and time for institutional transformation – transaction costs – should be carefully considered.