A transaction cost approach to climate adaptation: Insights from Coase, Ostrom and Williamson and evidence from the 400-year old zangjeras Eduardo Araral National University of Singapore, Lee Kuan Yew School of Public Policy, 469C Bukit Timah Road, Singapore, Singapore 1. Introduction The debate on climate change has been shifting overtime from evidence to mitigation to assessment of impacts and more recently towards adaptation (Kundzewicz et al., 2007; Barnett et al., 2004). The climate adaptation literature, however, is still at its infancy as can be gleaned from the range of outstanding theoretical, empirical and methodological issues. First, the empirical links between adaption, local institutions and climatic risks are often tenuous. On one hand, climate scientists propose adaptation options based on future climate scenarios that rely on low resolution General Circulation Models (GCMs) but often ignore social science considerations in their models, for example Kundzewicz et al. (2007); Lehner et al. (2005) and Arnell (2004). As a result, these GCM models have resulted into recommendations biased towards engi- neering approaches to climate mitigation and do not recognize social mechanisms of adaptation. Social scientists on the other hand study adaption but do not integrate the work of climate scientists. For instance, majority of the 118 case studies in the UNFCC database on adaptation imply or assert but do not demonstrate how variations in weather patterns are linked to adaptation strategies. Other scholars, for instance, Orlove (2005) and Janssen (2011) have been advocat- ing for a more multidisciplinary approach to the study of adaptation. Second, most economists, for example Stern (2007), have widely debated which policy instruments – taxes, markets, property rights and regulation – can best mitigate climate change but little research has been done which instruments best facilitate adaptation. Some scholars, for example Agrawal e n v i r o n m e n t a l s c i e n c e & p o l i c y 2 5 ( 2 0 1 3 ) 1 4 7 – 1 5 6 a r t i c l e i n f o Keywords: Coase Ostrom Williamson Climate adaptation Transaction cost Collective action Local commons Water resources management Irrigation a b s t r a c t I argue in this paper that transaction cost is central to the analytics of climate adaptation in the local commons. I illustrate this by bringing together insights from Coase on tradability of property rights, Ostrom on institutional design principles for long lived commons and Williamson on transaction cost and governance mechanisms. I call this the COW model on the analytics of climate adaptation, which I illustrate using grounded theory in the case of the 400-year old zangjera irrigation societies in Northern Philippines. The zangjeras are highly vulnerable to climatic risks but has successfully managed to adapt steadily overtime. I argue that their ability to adapt is a function of transaction cost which is associated with some ingenious principles of institutional design such as: (1) clear allocation and tradability of rights and obligations; (2) fairness in the allocation of risks, costs and benefits; (3) reliance on prices and incentives as adaptation mechanisms; (4) adaptive efficiency, i.e. maximiza- tion of welfare at least adaptation cost; (5) reliable enforcement mechanisms; and (6) a polycentric structure of governance. I conclude that the COW model can provide a useful foundation for the analytics of climate adaptation. # 2012 Elsevier Ltd. All rights reserved. E-mail address: ekararal@hotmail.com. Available online at www.sciencedirect.com journal homepage: www.elsevier.com/locate/envsci 1462-9011/$ – see front matter # 2012 Elsevier Ltd. All rights reserved. http://dx.doi.org/10.1016/j.envsci.2012.08.005