Economics Dictionary of ArgumentsHome
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| Transaction costs: Transaction costs are expenses incurred during the exchange of goods, services, or assets beyond the actual price. They include fees, time, effort, and information necessary for completing a transaction, encompassing negotiation, verification, and enforcement costs. These costs can affect market efficiency and influence decisions on whether to engage in economic exchanges. See also Efficiency._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Arthur Cecil Pigou on Transaction Costs - Dictionary of Arguments
Kiesling I 23 Transaction cost/externalities/Coase/Pigou/Kiesling: (…) when defining property rights is prohibitively costly or not feasible (as in, say, air pollution), bargaining to negotiate transfers of rights cannot happen. Property rights definition and enforcement costs are a category of transaction costs. Low transaction cost: Situations with low transaction costs are more likely to see welfare-enhancing bargaining, while … High transaction cost: …high transaction costs can prevent such conflict resolution. Example: An example of Pigou’s that Coase discusses for other reasons illustrates the challenge of transaction costs: the operation of a railroad through rural land in the 19th century. Railroad companies purchased land and built rail networks to run trains pulled by coal-fired steam locomotives, which threw off sparks that could cause fires that destroyed some adjoining crops or woodlands. In a situation such as the transcontinental railroad in the United States, the railroad company operated over thousands of miles and could potentially emit sparks on land owned by thousands of different farmers. This situation and others like it present a considerable transaction cost challenge, one that is common in many situations where there is a conflict in resource uses. Bargaining: In order for the farmers to bargain with the railroad over the rights to emit sparks and the rights to unharmed crops enough farmers would have to gather together to represent the interests of all affected farmers - in other words, the transaction costs would be high. In situations like these, the courts determine which party has legal liability for harms created, and enforce compensation if necessary. Pervasiveness: An overarching theme of Coase’s work on social cost is that transaction costs are pervasive. Because of that pervasiveness courts are important institutions whose decisions have implications for both the efficiency of outcomes and the distribution of profits across parties. >Law/Coase._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
EconPigou I Arthur C. Pigou The Economics of welfare London 1920 Kiesling I L. Lynne Kiesling The Essential Ronald Coase Vancouver: Fraser Institute. 2021 |
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