Protection costs, transaction costs,and economic theory
Contractual reductionism takes market exchange as the ubiquitous form of economic organization throughout history. Transactions costs are accordingly regarded as the costs of running any economic system in general. This paper explores the nature of protection/aggression costs as specific costs of coordination through coercion which should be distinguished from transaction costs. Protection/aggression costs play a crucial role in deciding the frontiers between the state and firms as well as their alliance and networking. Our study shows that externalization or internalization of the state-type activities of the enterprise hinges upon the amount of protection/aggression costs compared to the sum total of tax plus transaction costs.
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