Transaction Cost Federalism and Intergovernmental Institutions

Transaction Cost Federalism Review Essay

"A Transaction Cost Theory of Federalism"

Institutional theories of legislative delegation view the relationship between the legislature and administrative agencies as hierarchical (Epstein and O’Halloran, 1999). Depending on the policy at stake, the legislature can retain authority for defining the details and carrying out policy, or it can delegate that authority to executive agencies. Applying examples from the study of annexation and boundary change, we argue that this approach can also be applied to the relationship between states and local governments in the U.S. system of federalism.This paper expands some of the arguments presented by the local boundary change literature to a more general transaction cost theory of federalism and examines the implications of transaction cost federalism for local annexation behavior.

Ongoing projects

Institutional Entrepreneurs and Boundary Change

Institutional Entrepreneurs and Boundary Change program focuses on historically and empirically testing explanations for boundary change based on a collective action theory. Recently, there are three main topics. First, this program examines the roles of institutions, incentives, and entrepreneurs in local boundary changes including annexation, municipal incorporation, charter schools, homeowner associations, special districts, and city-county consolidations (with Agustin Leon-Moreta). Moreover, this program investigates the drive of municipal reform and changes on form of government in the United State (with Cheon Geun Choi and Jungah Bae). Third, the influence of different institutions and governance structures on local government policy and fiscal choices is explored (with Myung Jung Kwon and Hee Soun Jang).

Tenure, Turnover and Political Transaction Costs

Tenure, Turnover and Political Transaction Costs program aims attentions at institutional effects on actor’s transactional interactions and decisions at local level. One topic is to examine the “push” and “pull” factors for executive turnover (with Barbara McCabe, James Clinger and Christopher Stream). This program also considers conditions under which city managers would be delegated decision power from city councils (with Yahong Zhang). And lately this program explores collaborative patterns for local governments, especially collaborator selections responding to different forms of government, by employing social network analysis (especially Exponential Random Graph Model) (with In Won Lee and Hyung Jun Park)

Third Party Federalism

This project develops and tests a theory of third party federalism to capture how contractors and contracting design influence implementation of intergovernmental programs with surveys and administrative records of implementation of energy efficiency and conservation grants. Some latest works focus on the use of third-party implementers to achieve policy goals of intergovernmental grants, such as Energy Efficiency and Conservation Block Grant Program (with Jessica Terman), while others shed lights on county–nonprofit relationships formation stimulated by federal and state financial transfers (with Jayce Farmer)

Informed Principals and Learning Agents

The proposed research advances and integrates theories of intergovernmental relations, organizational innovation, and principal agent models by investigating endogenous preferences in intergovernmental grant programs--whether and when federal grants shape the preferences of local governments in new or innovative policy areas (energy grants on energy program). This research extends traditional theories of intergovernmental grants and argues that the information, shared risk, and policy learning mechanisms produced through grant application and implementation can induce or alter the preferences and goals of agents in such a manner that the desired behavior persists after the grant program is terminated. Particularly, the implementation of intergovernmental grants designed to stimulate local government investments in clean energy under The American Recovery and Reinvestment Act (ARRA) provides an ideal laboratory to investigate under what circumstances principals can alter the preferences of agents to induce behavioral change.