Transaction Costs and Profitability in UK Manufacturing

Michael Dietrich

No 2009011, Working Papers from The University of Sheffield, Department of Economics

Abstract: This paper explores the impact of transaction costs on performance at firm and industry levels using a sample of 7350 UK manufacturing firms. This is achieved by estimating a profit function with estimated transaction costs as a right hand side variable. The discussion has two specific objectives. (1) To show how firm and average industry transaction costs can be estimated using a stochastic frontier method. (2) To examine a central claim of transaction cost theory that links these costs to performance. In addition the different impacts of static and dynamic transaction costs are emphasised, with the different impacts being respectively negative and positive on profitability. Broadly speaking it is shown that such costs do impact on performance in a way consistent with both static and dynamic costs, in different industries, and that the impacts hold after a series of robustness checks. In addition it is shown that the impacts can depend on monopoly power, firm scale, and firm growth.

Keywords: Transaction costs; Stochastic frontier analysis; profitability analysis; UK manufacturing (search for similar items in EconPapers)
JEL-codes: C21 D23 L60 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2009-06, Revised 2009-06
New Economics Papers: this item is included in nep-cse and nep-eff
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