Transaction Costs and Institutions

Charles Nolan and Alex Trew

No 2011-11, SIRE Discussion Papers from Scottish Institute for Research in Economics (SIRE)

Abstract: This paper proposes a simple framework for understanding endogenous transaction costs - their composition, size and implications. In a model of diversification against risk, we distinguish between investments in institutions that facilitate exchange and the costs of conducting exchange itself. Institutional quality and market size are determined by the decisions of risk averse agents and conditions are discussed under which the efficient allocation may be decentralized. We highlight a number of differences with models where transaction costs are exogenous, including the implications for taxation and measurement issues.

Keywords: Exchange costs; transaction costs; general equilibrium; institutions (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-mic
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Citations: View citations in EconPapers (1)

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