Types of transaction costs
10 important questions on Types of transaction costs
What does the transaction cost model assume about the market and transactions between individuals?
- Participants aiming to maximize revenues from exchanges
- Behavior defined as opportunistic
How does the transaction cost model view transaction costs?
- Arise due to information-related problems
- Similar to friction in physical systems causing economic activity reduction
What factors contribute to the costs of transactions in the real world as per the transaction cost model?
- Crafting exchange contracts accurately
- Monitoring contract execution to identify responsibilities
- Checking partners' reputation to avoid surprises
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How may we group the information-processing costs related to transacting through the negotiation of an exchange into main classes?
- Contracting Costs: negotiation of trade terms and drawing up contract
- Control and Regulation Costs: implementing the contract, policing deviations, enforcing sanctions.
What are the three stages of the transaction life cycle as mentioned in the text?
- Contracting
- Enforcement
How is information technology viewed in the transaction cost model?
- It helps in mediating transactions or exchanges between parties
- Information technology can reduce costs of transacting by enabling more information exchange in the same time
- It aids in improving linkage between buyer and seller and enhances contracting processes
What is the role of information technology in improving market efficiency according to the transaction cost model?
- Increased use of information technology results in lower transaction costs leading to a more efficient market
- It helps in sustaining market-like forms of organization by reducing costs of transacting
What are the strengths and limitations of the transaction cost perspective in analyzing economic phenomena?
- It helps interpret various micro and macro phenomena like vertical integration, employment contracts, and anti-trust laws
- Limitations involve a narrow view of agents as 'economic man' maximizing utility and a static view of economic institutions' existence and change
How does transaction cost economics explain the efficiency of governance structures in the long run?
- Efficient structures must adapt swiftly to change to survive in the long run
- The approach does not address the forces making certain economic organizations stickier than others
How might information technology raise coordination costs, despite reducing transaction costs, when considering the interplay between coordination costs, transaction costs, and information processing costs?
- Need for specialized skills
- Requirement for more training
- Necessity of continuous maintenance
- Demand for better integration
- Enhanced need for data security
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