Background

The economics of transaction costs is often seen as a specialized area confined to application in some cases. However, it is a misnomer that this theme is confined only to cases where some costs are to be considered explicitly or weighed in for decision-making. The general approach of this area is one of comparative economic analysis, where there is economic efficiency enhancement with due consideration of comprehensive and practically significant costs; these transaction costs (TC) and their behavioural implications are added dimensions relative to traditional and simplified economic analysis. Clearly, any real-life economic problem includes complex factors and interlinks. To offer an overly simplified solution is sometimes counter-productive. Broader comprehension than is done in much of traditional economic analysis is called for, and this is feasible with the application of transaction cost economics (TCE). The approaches of new institutional economics (NIE) tend to subsume those of TCE, but the latter by itself is potentially capable of providing relevant insights. TCE should be used in conjunction with, but not to the exclusion of, other relevant economic approaches, as Williamson (1985) suggested.