Transaction Costs and Institutions
AbstractThis paper proposes a simple framework for understanding endogenous transaction costs - their composition, size and implications. In a model of diversification against risk, we distinguish between investments in institutions that facilitate exchange and the costs 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.
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Bibliographic InfoPaper provided by Scottish Institute for Research in Economics (SIRE) in its series SIRE Discussion Papers with number 2011-11.
Date of creation: 2011
Date of revision:
Exchange costs; transaction costs; general equilibrium; institutions;
Other versions of this item:
- D02 - Microeconomics - - General - - - Institutions: Design, Formation, and Operations
- D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
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