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Chapter 4

Textbook Notes - Chapter 4 The Elements of Transaction Costs

by OC4

Course Code
Robert Barber

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The Elements of Transaction Costs
3 steps of exchange t 3 forms of transaction costs:
1. Locate partner t SEARCH COSTS
2. Bargain (through successful negotiation) t BARGAINING COSTS
3. Enforcement t ENFORCEMENT COSTS
Search costs
- HIGH t unique goods/services
- LOW t standardized goods/services
Bargaining Costs
- HIGH t information is private (the need to convert private to public), more parties, dispersed,
hostility, anticipation of contingencies
- LOW t information is public (bargaining games are easier to solve)
- Each Ç[Z}(}}]Àµv}vl]vP}u]v(}u]}v]À
Enforcement Costs
- HIGH t agreement takes time to fulfill (e.g. process of monitoring and punishing)
- LOW/NO t agreement takes no time to fulfill
*TABLE 4.3 Page 98
Property Law Terms:
- Treat Value, State of Nature (both grow, steal, and lose through theft)
- Coase Theorem
1. Ranch Vs. Farm (court determines rights of either party)
2. Open Vs. Closed Range (which is more efficient?) t no cooperation
3. Cooperation (Successful Bargaining) = save costs & divide savings among parties
4. Communication = TRANSACTIONS COSTS
5. ^ÁZvv]}v}ìUv((]]vµ}(}µµo(}u]À
6. ^ÁZvv]}n costs are high enough to prevent bargaining, efficient use of
7. NONcooperation/no bargaining = follow law (leave it to the decisions of the court)
1. Private vs. public
2. /(ZÀoµ[vZ}}]À}]}v[lv}ÁvU]v(}u]}vµo]t able to compute
reasonable terms for cooperation (negotiations are simplye/easy!)
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