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Axiomatic Formulation Of The Optimal Transaction Cost Theory In The Legal Process Through Cobb-Douglas Optimization

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  • Osei Bonsu, Kwadwo

Abstract

Subject and purpose of work: This paper uses Cobb-Douglas optimization to formulate an optimal transaction cost algorithm within the constraint of a generalized legal framework. Materials and methods: The author has adopted a Lagrangian approach to formulate the social utility function, then, from a set of legally allowed strategies established the Karush-Kuhn-Tucker conditions for the legal game so as to find the optimal parameters within the social utility function. Finally, the optimal transaction cost algorithm was developed. Results: The Bordered Hessian Matrix from the partial differentials of the social utility function showed that there is a particular parameter within the social utility function which describes the optimal transaction cost. An adjustment of this parameter is essential in mechanism design for legal games. Conclusions: The author has shown how transaction costs influence the set of strategies played by players in a legal game, and has described the essence of a social utility function and how it can be optimized.

Suggested Citation

  • Osei Bonsu, Kwadwo, 2021. "Axiomatic Formulation Of The Optimal Transaction Cost Theory In The Legal Process Through Cobb-Douglas Optimization," Economic and Regional Studies (Studia Ekonomiczne i Regionalne), John Paul II University of Applied Sciences in Biala Podlaska, vol. 14(3), September.
    • Handle: RePEc:ags:plecrs:314764
    DOI: 10.22004/ag.econ.314764
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    References listed on IDEAS

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    3. Kwadwo Osei Bonsu & Shoucan Chen, 2020. "Mechanism of Instrumental Game Theory in The Legal Process via Stochastic Options Pricing Induction," Papers 2006.11061, arXiv.org.
    4. Bylund, Per L., 2021. "The Firm versus the Market: Dehomogenizing the Transaction Cost Theories of Coase and Williamson," Strategic Management Review, now publishers, vol. 2(1), pages 79-118, February.
    5. Jeonghyun Kim, 2013. "Revisiting the Learned Hand Formula and Economic Analysis of Negligence," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 169(3), pages 407-432, September.
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