ABSTRACT
The purpose of this chapter is to propose a theory of governmental consolida tion through the argument that transaction costs provide just such a theory. But what is a transaction cost? And how might a theory of transactions provide a framework for understanding changes in the metropolis of local government, federalism, and intergovernmental relations? According to this theory of orga nization (North 1990), institutions are formed to organize transactions; efficient institutional forms minimize transaction costs; and the number of transactions are the principal unit of organizational analysis. In this framework, transactions are decisions, represented by movements from one outcome to another, where there are costs associated with transitions between outcomes (Twight 1994). In certain instances, it is possible to specify the amount or the type of transaction cost (Young 1991). In other environments, presumptions are made concerning the form of these costs (Shelanski and Klein 1995). Quite simply, the transac tion cost hypothesis is that any form of exchange, trade, or bargaining occurs with cost.
