Edwin Buitelaar
Department of Urban planning
Radboud University Nijmegen
Complexity, institutions and transaction
costs: a complicated triangular
relationship
Background
• No expert in complexity theory
• Link between complexity in decision-making and transaction
costs
• Working on: “The cost of land use decisions” (Blackwell,
Oxford)
• Application of transaction cost theory (a la Coase and
Williamson) to planning and development
• Basic causal chain: complexity – transaction costs –
governance structures (= institutions)
Introduction to transaction cost theory
• Transaction: legal action to increase (or take) control over
property rights (e.g. also applying zoning)
• Transaction costs: costs of these actions (e.g. land
exchange, planning agreement, zoning), more specific: the
costs of creating and using land use institutions
• Determinants of transaction costs?
Transaction costs
Williamson (e.g. 1985):
Factors that give rise to transaction costs:
•Human factors: bounded rationality and opportunism
•‘Environmental factors’: interdependencies, uncertainty (and
frequency)
Level of interdependency and level of uncertainty determine
the level of complexity
Transaction costs
- Governance structures emerge and change in response to
the combination of human and environmental factors, and the
related transaction costs (discriminating alignment)
- Complexity is the independent, transaction costs the
intermediary and governance structures the dependent
variable
- Causal chain: complexity – transaction costs – governance
structures (= institutions)
Transaction costs
Transaction costs
Empirical research
- Institutions do not only reduce complexity, they create it as
well (e.g. public law)
-Institutions do not only reduce transaction costs, their creation
and use are also subject to costs (e.g. making local plans,
development control)
Conclusions for complexity research
- Complexity is not only an independent variable, it is also the result
of human action (and thus dependent variable): complexity in
decision-making is a social construction!
- ‘Quest for control’ (Van Gunsteren, 1976) is an important
complexity and transaction cost-raising factor.
- Reducing complexity and increasing control is not always possible
(Bertolini), or only at a cost.