This paper provides a comprehensive review of the empirical literature in transaction cost economics (TCE) across multiple social science disciplines and business fields. We show how TCE has branched out from its economic roots to examine empirical phenomena in several other areas. We find TCE is increasingly being applied not only to business-related fields such as accounting, finance, marketing, and organizational theory, but also to areas outside of business including political science, law, public policy, and agriculture and health. With few exceptions, however, the use of TCE reasoning to inform empirical research in these areas is piecemeal. We find that there is considerable support of many of the central tenets of TCE, but we also observe a number of lingering theoretical and empirical issues that need to be addressed. We conclude by discussing the implications of these issues and outlining directions for future theoretical and empirical work.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1148775_code485747.pdf?abstractid=924192&type=2

Transaction Cost Economics: An Assessment of Empirical Research in the Social Sciences

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1. National governments and global capital: a review and a recasting 2. Financial market influence on government policy: theory and hypotheses 3. Financial market influence in developed nations: a quantitative assessment 4. Financial market-government relations in emerging economies 5. Politics meets markets: domestic responses to financial market pressures 6. Alternative domestic responses: changes to financial market-government relations 7. History repeating itself? Financial markets and national government policies before the first World War 8. Financial market-government relations in the twenty-first century.

/pdf/global-capital-and-national-governments-1xlnhrf6ch.pdf

Global Capital and National Governments

A central research question in international political economy concerns the influence of financial markets on government policy outcomes. To what extent does international capital mobility limit government policy choices? I evaluate the relationship between international financial markets and government policy outcomes, with a focus on the government bond market in developed democracies. Evidence includes interviews with financial market participants and a cross-sectional time-series analysis of the determinants of interest rates. This evaluation suggests that governments of developed democracies face strong but narrowly defined financial market pressures. Financial market participants are concerned with a few macroeconomic policy indicators, including inflation rates and government deficit/GDP ratios, but not with micropolicy indicators, such as the distribution of government spending across functional categories. In these areas, governments retain policymaking autonomy. I conclude by exploring the role of financial market influences within domestic politics and offering suggestions for further research.

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Room to move: International financial markets and national welfare states

We show that political geography has a pervasive effect on the cross-section of stock returns. We collect election results over a 40-year period and use a political alignment index (PAI) of each state’s leading politicians with the ruling (presidential) party to proxy for local firms’ proximity to political power. Firms whose headquarters are located in high PAI states outperform those located in low PAI states, both in terms of raw returns, and on a risk-adjusted basis. Overall, although we cannot rule out indirect political connectedness advantages as an explanation of the PAI effect, our results are consistent with the notion that proximity to political power has stock return implications because it reflects firms’ exposure to policy risk.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1919250_code764873.pdf?abstractid=1919250&mirid=1

Political Geography and Stock Returns: The Value and Risk Implications of Proximity to Political Power

One of the critical challenges of contemporary democracy is securing a balance between the markets of representation and the markets of exchange and capital within democracies. This article explores the effect that political markets have upon capital markets' performance as measured by the market risks within the long-term government bond markets in nineteen democracies of the Organization for Economic Cooperation and Development (OECD) between 1955 and 1992. Our theory linking political markets and capital markets will be developed around the logic of transaction cost economics. We will argue that critical aspects of transaction costs within political markets generate corresponding transaction costs and risks within capital markets thereby reducing market efficiency. Specifically, we demonstrate that, based on cross-national evidence drawn from three panels over the time period 1955–1992, stochastic political markets generate transaction costs within long-term government bond markets, the consequences of which are reflected in rising market risk within these capital markets. Our pooled cross-sectional sample confirms that stochasticity in institutional structure presents trade-offs for democracy. Stochasticity may reflect more responsive and generally sensitive representative institutions, but often at the price of risk-laden capital markets. We consider the implications of these findings at the conclusion of the article.

https://www.jstor.org/stable/pdfplus/2600820.pdf

Political Markets, Bond Markets, and the Effects of Uncertainty: A Cross-National Analysis

Managing Common Pool Groundwater Resources: An International Perspective, Marry Brentwood, Stephen F. Robar (Eds.). Praeger, Westport, CT (2004), 347 pages

Over the years, many decisions concerning the rights to water resources have been addressed in state legislatures and federal courts; however, the majority of decisions concerning the conflicting demands over water have been addressed in state courts. This study examines the body of water rights cases heard in state supreme courts of the eleven Western states and focus on litigant participation and success. The data set includes all the water rights cases decided between 1972 and 2008 in the eleven western state high courts (Arizona, California, Colorado, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming). The study explores the propensity of different types of litigants to initiate water rights cases at the state supreme court level, and also examines litigation patterns to determine which litigants are the targets of these appeals. Galanter's (1974) party capability theory is used to help explain patterns of litigant success.

Litigant participation and success in water rights cases in the Western States

This paper compares the logical foundations and classical interpretations of compact and compound theories of federalism as they apply to the emerging European federal authority. The study outlines the critical criteria by which one would ascertain the dominance of one model relative to that of the other within the emerging structure of authority across Europe. Operationalizing the critical institutional authority patterns governing the coordination of general property interests throughout European democracies, the study concludes that between 1955 and 1992, major European democracies have evolved toward a hybrid logic of institutional authority consistent more with a compound than a compact theory of federal authority. The sample consists of 14 European democracies.

Robert L. Perry

Papers

Political Markets, Bond Markets, and the Effects of Uncertainty: A Cross-National Analysis

Managing Common Pool Groundwater Resources: An International Perspective, Marry Brentwood, Stephen F. Robar (Eds.). Praeger, Westport, CT (2004), 347 pages

Litigant participation and success in water rights cases in the Western States

Compact or Compound Republicanism?: The Political Economy of Europe's Federal Vision

Liquid Hydrogen as a Propulsion Fuel, 1945–1959 by John L. Sloop (review)