Transaction Management: Value Creation by Reducing Transaction Costs

Frank Den Butter ()

No 10-051/3, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: This discussion paper led to a publication in (W.D. Nelson (Ed.)), Advances in Business and Management (pp. 1-32), New York: Nova Publishers, 2011. In this era of globalization we see an increase in specialization: the production chain issplit up in more and more parts and the production of these parts is outsourced to thoseplaces in the world where production is relatively cheapest and most efficient. Itimplies that transaction costs, associated with the coordination of production and tradein parts and components, become increasingly important. In small open service orientedeconomies like the Netherlands, transaction costs may amount to up to 50% of totalvalue added. Therefore, the ability and skill to keep transaction costs low is vital for thecompetitive position of a firm or country. This is what transaction management is about:create value from these transactions by keeping transaction costs as low as possible.Transaction management is based on modern theories of transaction costs economics,institutional economics, industrial organization and international trade. It makes thesetheories operational for strategic decision making in industry and government. Thischapter surveys how transaction management as a practical tool for the organization ofproduction has been inspired by these modern economic theories.

Keywords: transaction costs; outsourcing; trade in tasks; fragmentation of production; make or buy decision; game of trust (search for similar items in EconPapers)
JEL-codes: D23 F2 F43 L23 (search for similar items in EconPapers)
Date: 2010-05-17
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20100051

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