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Transaction Costs and Institutions: Investments in Exchanger

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  • Nolan, Charles
  • Trew, Alex

Abstract

This paper proposes a simple model for understanding transaction costs for their composition, size and policy implications. We distinguish between investments in institutions that facilitate exchange and the cost of conducting exchange itself. Institutional quality and market size are determined by the decisions of risk averse agents and conditions are discussed under which the efficient allocation may be decentralized. We highlight a number of differences with models where transaction costs are exogenous, including the implications for taxation and measurement issues.

Suggested Citation

  • Nolan, Charles & Trew, Alex, 2015. "Transaction Costs and Institutions: Investments in Exchanger," SIRE Discussion Papers 2015-70, Scottish Institute for Research in Economics (SIRE).
    • Handle: RePEc:edn:sirdps:678
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    File URL: http://hdl.handle.net/10943/678
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    References listed on IDEAS

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    1. Timothy Besley & Torsten Persson, 2010. "State Capacity, Conflict, and Development," Econometrica, Econometric Society, vol. 78(1), pages 1-34, January.
    2. Williamson, Oliver E., 2010. "Transaction Cost Economics: The Natural Progression," Journal of Retailing, Elsevier, vol. 86(3), pages 215-226.
    3. Robert M. Townsend & Kenichi Ueda, 2006. "Financial Deepening, Inequality, and Growth: A Model-Based Quantitative Evaluation -super-1," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(1), pages 251-293.
    4. George Chobanov & Henrik Egbert, 2007. "The Rise of the Transaction Sector in the Bulgarian Economy," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 49(4), pages 683-698, December.
    5. Richard N. Langlois, 2005. "The Secret Life of Mundane Transaction Costs," Working papers 2005-49, University of Connecticut, Department of Economics.
    6. Robert M. Townsend & Mr. Kenichi Ueda, 2003. "Financial Deepening, Inequality, and Growth: A Model-Based Quantitative Evaluation," IMF Working Papers 2003/193, International Monetary Fund.
    7. De Alessi, Louis, 1983. "Property Rights, Transaction Costs, and X-Efficiency: An Essay in Economic Theory," American Economic Review, American Economic Association, vol. 73(1), pages 64-81, March.
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    More about this item

    Keywords

    exchange costs; transaction costs; general equilibrium; institutions;
    All these keywords.

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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