Transaction Cost (TC) economics is highly relevant to public policy issues, enabling exploration of the influence of institutional and organisational arrangements upon policy performance. As policies evolve, often becoming more multifaceted as they grow, so the associated transactions costs increase and this affects policy outcomes in multiple ways. We consider this phenomenon in the case of rural development (RD) programming under Pillar 2 of the CAP. Expectations of what RD funding should deliver are both broad and significant. However, performance frequently falls short of goals. From detailed analysis of the experience of RDP review and planning in Malta, we aim to analyse how transaction costs, in both private and public spheres, may distort and undermine RDP performance in ways which are largely unrecognized at EU level. At the same time, we identify potential ‘transaction benefits’, when exchange processes are designed in ways that generate positive returns going beyond those of the immediate transaction. We suggest that more attention to these aspects of policy design is warranted.


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