The Importance of Being Trusted: Transaction Costs and Policy Network Theory

Transaction cost economics is used to defend and develop policy network theory. Networks, like markets and hierarchies, are a form of governance structure. As one form of network, policy communities develop and survive because they reduce transaction costs that would otherwise threaten the exchange of resources between government and pressure groups. Policy communities alter outcomes and should be an important part of the explanation of public policy. Whilst of general relevance, the argument is illustrated with particular reference to the frequently hostile but ultimately successful negotiations between the British Medical Association and the Ministry of Health prior to the creation of the National Health Service in 1948.