The Institutional Economics of Water
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The Institutional Economics of Water

A Cross-Country Analysis of Institutions and Performance

R. Maria Saleth and Ariel Dinar

This outstanding new book provides the most detailed and comprehensive evaluation of water reform and water sector performance from the perspectives of institutional economics and political economy.
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Chapter 4: Evaluating institutional linkages: toward an alternative methodology

R. Maria Saleth and Ariel Dinar


The identification of the theoretical and methodological gaps present in current institutional research, though very important, is much less challenging than the task of addressing these gaps, especially within an empirical context. Difficult though it is, however, the task is not insurmountable. Our ability to face the challenge lies in developing an alternative methodology for systematic evaluation of institutional linkages and their strategic implications through the subjective and ex-ante perception of stakeholders and decisionmakers. In this chapter, we develop such an alternative methodology using a few theoretical and analytical components as its basic building blocks. These components include the contextual delineation, ecosystem perspective and ex-ante approach, subjective theory of institutional change, pluralistic approach and methodological complementarity, and institutional decomposition and analysis (IDA) framework. Although the rationale and basis of the subjective approach and IDA framework form part of the methodological description in this chapter, their analytical representation and empirical translation will receive a more focused treatment in the next two chapters. Before describing the components of the methodological framework, two key aspects should be recognized so as to know how our methodology departs from others in the literature. First, it allows an explicit and multipronged evaluation of the role that factors, both exogenous and endogenous to institutional structure, play in the process of institutional performance and change. In the application of our methodology, the exogenous factors are evaluated both heuristically, using observed cross-country evidence within an institutional transaction cost framework, and quantitatively, using secondary data within a cross-country regression context....

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