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transaction costs


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The cost incurred in undertaking an economic exchange. Practical examples of transaction costs include the commission paid to a stockbroker for completing a share deal and the booking fee charged when purchasing concert tickets. The costs of travel and time to complete an exchange are also examples of transaction costs. The existence of transaction costs has been proposed as the explanation for many of the economic institutions that are observed. For example, it has been argued that production occurs in firms rather than through contracting via the market because this minimizes transaction costs. Transaction costs have also been used to explain why the market does not solve externality problems. See also Coase theorem; transaction cost economics.

Subjects: Economics.


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