This article uses a transactions approach to examine the ability of governments to develop and sustain negotiated solutions to major economic challenges. Where actors are embedded in long-term, repeated interaction, have long time horizons, and invest in monitoring and enforcement technologies, effective political exchange is more likely. In good transactions environments, policy bargains will be more easily renegotiated and therefore more flexible and durable. To examine the expectations the author looks to the puzzle posed by events in Australia and New Zealand, 1983-1996. Facing similar macroeconomic crises and with historically similar wage bargaining institutions and levels of union density both elect Labor governments, which then make opposite choices: A negotiated solution emerged in Australia but not in New Zealand. Relying on the secondary literature and interviews with key actors, the author finds support for the transactions approach. Findings here point to ways in which to broaden the study of so-called social pacts.
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