Tropical Agricultural Research Vol. 20: 73 - 88 (2008) Transaction Costs and Household Participation in Community-based Village Tank Aquaculture in Dry Zone A. Senaratne, L.H.P. Gunaratne 1 and K. Karunanayake 2 Institute of Policy Studies of Sri Lanka 99, St. Michael’s Road Colombo 3, Sri Lanka ABSTRACT. Village tanks help the rural food security in various ways of which supply of animal proteins from freshwater fish plays an important role. Community-based aquaculture has been introduced in village tanks to enhance this potential. Despite favourable technical and financial performances indicated in the pilot programmes in village tank aquaculture, the rate of adoption as well as the level of participation by communities has been rather low. Both community cooperation and household participation involve some trade-offs in terms of transaction costs and household shadow prices, which are affected by various factors. This paper attempts to understand such factors that affect the community cooperation and household participation. The necessary data were collected from 340 households in 41 village tank communities in Anuradhapura district. Two regression models were estimated to analyze the factors affecting transaction cost and household participation respectively. Results highlight that transaction cost for protecting fish from poaching overwhelmingly dominates others. Factors that represent the physical nature of the resource and technical aspects of culture operations such as tank size and culture period seem to affect this most. In addition, group size also has a positive relationship with transaction costs. At the household level, the source of household income affects participation significantly. Findings of the study highlight that viability of community-based aquaculture depends largely on ability to minimize transaction cost for effective cooperation and share of household opportunity cost for participation. INTRODUCTION Recently, a high level of enthusiasm has been witnessed over small village tanks as an important source of food security for rural poor in rain-fed areas of dry zone of Sri Lanka (Panabokke et al., 2001). These village tanks help the rural food security in various ways, of which, animal protein from inland freshwater fish has an important role to play in the nutrition of local communities. 1 Department of Agricultural Economics and Business Management, Faculty of Agriculture, University of Peradeniya. 2 Department of Inland Revenue, Sir Chittampalam Gardiner Mawathe, Colombo 2.