THREE APPLICATIONS OF TRANSACTION COST ECONOMICS IN ROMANIA

Radu A. Păun
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Radu A. Păun: International Monetary Fund Institute

Romanian Economic Business Review, 2008, vol. 3, issue 3, 71-81

Abstract: We begin by investigating the use of complex contracts in Romania. A transparent transaction cost economics (TCE) model generates the hypothesis that buyer and seller relationship-specific investments have opposite effects on contract complexity. Our analysis counters the problem of unobserved heterogeneity, generates estimates of the effects of specific investments that are opposite in sign on opposite sides of the agreement, and explains the patterns in the biases of ordinary least-squares estimates. We continue by presenting a simple methodology for measuring transaction costs at agreement level. These costs are assessed as large, accounting for more than a fifth of value added. The validity of the measure is tested and quality of the data is analyzed. Finally, we investigate the determinants of transaction costs estimates thus obtained. Results show that TCE theory is very successful at predicting the existence of transaction costs and moderately so at predicting their size when incurred by firms.

Keywords: new institutional economics; transaction cost economics; contract complexity (search for similar items in EconPapers)
Date: 2008
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