Wednesday, September 17, 2014

Transaction Cost


   Transaction cost is a concept in economics, refers to the completion of a transaction, the transaction generated both before and after the sale of the various costs associate with this transaction, which was proposed by Ronald Harry Coase. Coase believes that transaction costs should include metrics, define and protect property rights costs; find trading partners and transaction price paid; bargain, the cost to contract; fee urge strict compliance with the contract terms.
   Academia generally accepted transaction costs could be broadly divided into two narrow transaction costs. Transaction costs include all costs of generalized non-Robinson economy appears that, in order to break through all obstacles and reach tangible and intangible costs of exchanges needed. Transaction costs refer to the narrow market transaction costs, which exogenous transaction costs. Include: search costs, negotiation costs and compliance costs.
   For instance, many students in universities need to buy a car to make their daily life easier. The students have different taste and they need to choose different brands, makes and models. For example, there are limited resources of cars in Champaign, but the situation is different in Chicago. So many students need to buy cars in Chicago, they need to borrow cars to drive there or take the train to get to Chicago. The money and time students spend is transaction cost. Usually people will spend many time looking for a car, also some of people need to ask some people who know the cars very well. All these things can be called transaction cost.
   According to most scholars agree with the view, the transaction costs are "institutional costs" occurs when the use of market mechanisms. For example, the North believes that there are transaction costs to make the process of economic friction, which is the key factor affecting economic performance. Cheung also holds a similar view, he believes that a good economic system can effectively reduce coordination costs, namely saving transaction costs; bad economic system will improve the coordination of social costs, that increase transaction costs.


1 comment:

  1. Please try to keep you with the class. You are behind by one post.

    In class I tried to distinguish between production costs and transaction costs. If you need to test drive a car and inspect it on the spot, then you can't buy a car in Chicago from Champaign. The transportation getting to Chicago is really a production cost. But you could have analyzed the situation more to find out what transaction costs are involved.

    For example, this seems a likely scenario. Once the car salesman finds out that you are from Champaign, the salesman will likely not bargain as much and instead hold out for a higher price. It is true you could go to a different dealership in Chicago, but your time is limited there, as is your ability to get around. So the salesman will stick to a higher price. That part is the transaction cost.

    In your last paragraph, you cited the views of some researchers about transaction costs. Please provide a link to the pieces from which you got that information and/or give a full citation of the work without a link.

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