What coordination or transaction costs are involved with limiting the power of government?
Your question is confusing because transaction costs would be reduced (not incured) if the government’s power were limited. The way you asked the question, it sounds like you may be talking about contracting of government jobs. This is different than limiting the power of government. Basically, Congress decides to do something, and then obligates funds to do it. For example (hypothetical), The Congress decides to try and help the homeless by opening and running 50 homeless shelters. They obligate $10 Million to Department X, to build to do this. Transaction costs occur because not all of this money goes to actually running the shelter–there are costs associated with paying government employee’s, providing these employee’s workspace, healthcare, etc. There are even costs of writing progress reports to Congress. If this program were eliminated (or reduced) the transaction costs would be eliminated (or reduced). The downside would be that these shelters might not be run (however private
