Transaction cost economics is a theory within the field of economics that examines the costs associated with conducting economic transactions between individuals or entities. It focuses on understanding the factors that influence the costs related to exchange, such as searching for information, negotiating and enforcing agreements, and monitoring performance.
In transaction cost economics, transactions are viewed as a process of exchanging goods, services, or assets between parties. The theory posits that transaction costs arise due to both informational and behavioral uncertainties, as well as opportunistic behavior by individuals or organizations involved in the transaction. These costs can include the expenses of searching for potential partners, the costs of gathering and evaluating information about the transaction, the expenses of negotiating and contracting, and the costs of monitoring and enforcing the agreement.
The main objective of transaction cost economics is to analyze how different transactional arrangements, such as market exchange, hierarchical control, or hybrid forms, affect the overall costs and efficiency of economic transactions. It suggests that the choice between these arrangements depends on the specific characteristics of the transaction and the capabilities and information of the parties involved.
The concept of transaction cost economics was originally proposed by economist Ronald Coase in his seminal article "The Nature of the Firm" in 1937. It has since been further developed by numerous scholars, including Oliver Williamson, who was awarded the Nobel Prize in Economics in 2009 for his contributions to this field.
