Transaction Costs, History of
As a concept, transaction costs are used in numerous ways in economics, from simply referring to the fees charged by a financial broker to a much broader concept encompassing the comparative efficiency of alternative modes of resource allocation and economic coordination.
At the most general level, transaction costs are the costs that arise beyond the point of production of a good to effect its allocation. Beyond this, the literature is fragmented regarding the various facets of the concept. The distinction between production and allocation may not be meaningful in all instances. Transaction costs may or may not include transport costs, may or may not just refer to market exchange, may or may not be reduced to a single alternative category such as information costs or the cost of time. Some authors measure transaction costs in monetary terms, others as departures from first-best outcomes, or just on the basis of qualitative comparative rankings of feasible institutional alternatives. Indeed, whether transaction costs should be regarded as a cost at all has been subject to controversy, too. Hence, the term can be and has been applied in virtually every conceivable economic and social scientific context. Its wide uptake has been attributed to the systematic ambiguity inherent in its unqualified application, and its usefulness for serious analysis has been questioned on these grounds.
Although often used as a catch-all term, thinking in transaction cost terms has nevertheless yielded a rich array of models and analytical frameworks that have helped redefine how economists look at economic exchange and coordination. Circumspect definition specific to the particular context in which one seeks to use the concept should help avoiding semantic pitfalls. Furthermore, not only are systematically ambiguous notions common in economics, they actually serve a distinct and valuable purpose in the coordination of research. A sceptical stance towards the aggregate ambiguity of the transaction cost concept does thus not necessarily amount to a criticism of particular applications of the term, although a certain tendency can be observed outside of what has become known as a ‘new’ institutional economics towards alternative expressions. This paper review the various definitiosn of transaction costs in their historical context.
Preprint: 2008-Klaes-TC-preprint.pdf
This article is taken from the author’s original manuscript and has not been reviewed or edited. The definitive published version of this extract may be found in the complete New Palgrave Dictionary of Economics in print and online, available at www.dictionaryofeconomics.com.
Bibliographic details of definite published version:
Klaes, M. 2008. Transaction Costs, History of. In Steven N. Durlauf and Lawrence E. Blume eds. The New Palgrave Dictionary of Economics, 2nd edition. Basingstoke and New York: Palgrave Macmillan.
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