Part 1 - AL-Tax

Chapter 6the transaction cost-efficient governance choice is, instead of M or X U , a hybridcontracting X C or, even more transaction cost efficient, an organization-internalcoordination (F, R, or B). Among these three options, public agency (mode B) providesthe most safeguarding, given high asset specificity and contractual hazards.However, there is a trade-off against lower incentives, high administrative control,and less autonomous behavior. In contrast to private bureaucracy F such as a firm,governance mode B describes the internal organization of transactions. Accordingto Williamson (1999, p. 336), B results in the highest level of bureaucratization,adaptive integrity, and staff security. Also, it provides the lowest level of incentiveintensity, adaptive autonomy, executive autonomy, and legalistic disputesettlement.Williamson (1999, Table 2, p. 336) mentions the following features of publicbureaucracy: (a) Very low-powered incentives; (b) Extensive administrative controlsand procedures; (c) Appointment and termination of the agency’s leadershipby a quasi-independent sovereign (for example, president, legislature); (d) An elitestaff with considerable social conditioning and security employment. For example:‘. . . private bureaucracy (contracting out) [the governance change from publicbureaucracy (state government agency) to a private firm, MB] has the strongestincentives and the least administrative control, the strongest propensity to behaveautonomously (display enterprise and be adventurous) and the weakest propensityto behave cooperatively (be compliant), works out a (comparatively) legalistic disputesettlement regime, appoints its own executives, and affords the least degree ofsecurity of staff employment. The public bureaucracy is the polar opposite in all ofthese respects, while regulation (public agency plus private firm) is located inbetween these two along all dimensions (with the caveat that regulation may havemore administrative controls, possibly of a dysfunctional kind).’(Williamson, 1999, p. 336)Given this basic mechanism of governance choice, it may be more efficient for thegovernance of (domestic) taxation to follow B: The state coordinates the process ofgenerating its revenue by means of bureaucratic organization, and there is a trade-offbetween highly bureaucratic principles of organization and provisions, low incentives,small space for discretional decision-making, high administrative control,high legalistic dispute settlement, and high job security for personnel. The(bounded) rationale for transaction cost efficiency behind this governance mechanismincludes probity, equity, and neutrality. Since the sovereign state may gainmost benefit if its main ‘budget generation process’ ( taxation 8 ) is equitable and127