AC-TC back in black: Restoring environmental water in the Douro Basin, Spain

Abstract

Abatement costs (AC) and transaction costs (TC) are involved in motivating and implementing changes in public and private policies and programs. For example, Coase is best-known for his work on transaction costs, clearly stating that they matter. Both individual private and institutional public transaction costs are invested with abatement (production) costs to generate change through policy, program interventions, or incentives (e.g., regulation that minimizes or compensates those affected by smoke generated by neighbours). This compensation suggests some potential benefit to offset the losses caused by the negative event—funded, administered, monitored and possibly updated via abatement and transaction costs. Yet approaches to identifying, collecting data, measuring and describing abatement and transaction benefits remains missing from prior research. In fact, abatement or transaction benefits are almost unheard of. Because of this, standard benefit-cost analysis commonly used to economically evaluate and assess private and public investments does not feature in abatement or transaction cost research, limiting assessment and monitoring targets and a better understanding of more efficient future policy gains. As the demand and expectations for benefit-cost analysis grow in future to become more comprehensive and complex, finding ways to accommodate such analysis and test that approach is increasingly important globally. We describe such an attempt using a water management case study from northern Spain to show that not only is it possible to measure and report on coupled abatement and transaction benefits, but that prior theoretical interpretations may also be further explained and understood, providing private and public investment choices and water resource management narrative advantages