FrontPage TransactionCostTheory

Transaction Cost Theory

  • Different forms of economics organizations such as
    • market
    • hierarchical
    • clans
  • are the result of transaction costs.
  • Transaction costs generally refers to costs involving other than manufacturing products. For example,
    • gathering information
    • evaluating alternative options
    • negotiating
    • contracting
    • physical transactions of objects
  • These costs occur due to the complexity and uncertainty of economic system, which is a big argument against "rational choice" model of economic system.
  • Such statuses are consequences of unequal distribution of information between economic actors involved in the transaction.
  • Therefore, organizational forms are the result of managing uncertainties.


SA. Principal Agent Theory

Readings and Applications


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