IDEAS home Printed from https://ideas.repec.org/p/cuf/wpaper/785.html

Integrating Transaction Costs, Appropriability, and Consumption Frictions into Neoclassical Growth Dynamics

Author

Listed:
  • Heng-fu Zou

Abstract

This paper develops a governance-augmented Ramsey-Cass-Koopmans (RCK) growth model that unifies the neoclassical theory of capital accumulation with the institutional economics of Coase, Williamson, Alchian-Demsetz, Barzel, North, and Grossman-Hart-Moore. The central proposition is that governance is production: institutions reshape the effective production frontier, alter the intertemporal Euler condition, and modify welfare. On the production side, relation-specific investment generates incentive relief when returns are appropriable, offset by bureaucratic drag, safeguarding costs, and maladaptation. On the consumption side, transaction frictions such as iceberg costs, convex distribution costs, shopping-time requirements, and psychological wedges reduce effective utility. The model demonstrates that governance frictions shift steady states, generate multiple equilibria, and create low-level development traps. Comparative statics show that strengthening property rights, reducing bureaucracy, and lowering consumer frictions raise capital, consumption, and welfare. Cross-country differences in governance parameters explain divergent growth paths, while endogenizing institutions yields virtuous cycles, vicious cycles, and path dependence. The framework integrates institutional economics into dynamic macroeconomics, providing a rigorous foundation for understanding how governance structures shape long-run development.

Suggested Citation

  • Heng-fu Zou, 2025. "Integrating Transaction Costs, Appropriability, and Consumption Frictions into Neoclassical Growth Dynamics," CEMA Working Papers 785, China Economics and Management Academy, Central University of Finance and Economics.
  • Handle: RePEc:cuf:wpaper:785
    as

    Download full text from publisher

    File URL: https://down.aefweb.net/WorkingPapers/w785.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Oliver E. Williamson, 2000. "The New Institutional Economics: Taking Stock, Looking Ahead," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 595-613, September.
    2. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Stephanie Rosenkranz & Patrick W. Schmitz, 2007. "Can Coasean Bargaining Justify Pigouvian Taxation?," Economica, London School of Economics and Political Science, vol. 74(296), pages 573-585, November.
    2. Peter G. Klein & Michael E. Sykuta, 2010. "Editors’ Introduction," Chapters, in: Peter G. Klein & Michael E. Sykuta (ed.), The Elgar Companion to Transaction Cost Economics, chapter 1, Edward Elgar Publishing.
    3. Schmitz, Patrick W., 2021. "On the optimality of outsourcing when vertical integration can mitigate information asymmetries," Economics Letters, Elsevier, vol. 202(C).
    4. Kim, Jongwook & Mahoney, Joseph T., 2008. "A Strategic Theory of the Firm as a Nexus of Incomplete Contracts: A Property Rights Approach," Working Papers 08-0108, University of Illinois at Urbana-Champaign, College of Business.
    5. Patrick W. Schmitz, 2006. "Information Gathering, Transaction Costs, and the Property Rights Approach," American Economic Review, American Economic Association, vol. 96(1), pages 422-434, March.
    6. de Bragança, Gabriel Godofredo Fiuza & Daglish, Toby, 2017. "Investing in vertical integration: electricity retail market participation," Energy Economics, Elsevier, vol. 67(C), pages 355-365.
    7. Rossi, Enrico, 2020. "Reconsidering the dual nature of property rights: personal property and capital in the law and economics of property rights," LSE Research Online Documents on Economics 105840, London School of Economics and Political Science, LSE Library.
    8. Buchen, Clemens, 2010. "Emerging economic systems in Central and Eastern Europe – a qualitative and quantitative assessment," EconStor Theses, ZBW - Leibniz Information Centre for Economics, number 37141.
    9. Schmitz, Patrick W., 2023. "The proper scope of government reconsidered: Asymmetric information and incentive contracts," European Economic Review, Elsevier, vol. 157(C).
    10. Dietrich, Diemo & Jindra, Björn, 2010. "Corporate governance in the multinational enterprise: A financial contracting perspective," International Business Review, Elsevier, vol. 19(5), pages 446-456, October.
    11. Oliver E. Williamson, 2002. "The Theory of the Firm as Governance Structure: From Choice to Contract," Journal of Economic Perspectives, American Economic Association, vol. 16(3), pages 171-195, Summer.
    12. Schmitz, Patrick W., 2010. "Contractual solutions to hold-up problems with quality uncertainty and unobservable investments," Journal of Mathematical Economics, Elsevier, vol. 46(5), pages 807-816, September.
    13. Gabriel Hoh Teck Ling & Pau Chung Leng & Chin Siong Ho, 2019. "Effects of Diverse Property Rights on Rural Neighbourhood Public Open Space (POS) Governance: Evidence from Sabah, Malaysia," Economies, MDPI, vol. 7(2), pages 1-33, June.
    14. Schmitz, Patrick W., 2021. "Optimal ownership of public goods under asymmetric information," Journal of Public Economics, Elsevier, vol. 198(C).
    15. Alper Duman, 2009. "Comparative Analysis of Organizational Forms in the Software Industry and Legal Services," Working Papers 0903, Izmir University of Economics.
    16. Paul Walker, 2013. "The ‘Reference Point’ Approach To The Theory Of The Firm: An Introduction," Journal of Economic Surveys, Wiley Blackwell, vol. 27(4), pages 670-695, September.
    17. Gui, Emi Minghui & Diesendorf, Mark & MacGill, Iain, 2017. "Distributed energy infrastructure paradigm: Community microgrids in a new institutional economics context," Renewable and Sustainable Energy Reviews, Elsevier, vol. 72(C), pages 1355-1365.
    18. Mark Lorenzen, 2007. "Social Capital and Localised Learning: Proximity and Place in Technological and Institutional Dynamics," Urban Studies, Urban Studies Journal Limited, vol. 44(4), pages 799-817, April.
    19. Woodruff, Christopher, 2002. "Non-contractible investments and vertical integration in the Mexican footwear industry," International Journal of Industrial Organization, Elsevier, vol. 20(8), pages 1197-1224, October.
    20. Karpaty, Patrik & Gustavsson Tingvall, Patrik, 2011. "Offshoring of Services and Corruption: Do Firms Escape Corrupt Countries?," Working Papers 2011:2, Örebro University, School of Business, revised 28 May 2012.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cuf:wpaper:785. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Qiang Gao (email available below). General contact details of provider: https://edirc.repec.org/data/emcufcn.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.