R. Coase is the founder of neoinstitutionalism. It was he who, in 1937, in his work “The Nature of the Company”, laid down the idea of transaction costs, by which he understood the costs of ensuring the functioning of the market system. This definition later changed somewhat. They began to be interpreted as the costs of operating economic systems.
North saw transaction costs as a source of social, political institutions. That is, institutions and various types of contracts exist in order to save this type of cost.
The transaction costs of the company play an important role in deciding whether to open a company or not, they arise when individuals exchange property rights in conditions of incomplete information. These costs are considered in connection with the promotion of the contract, with the conclusion (execution) of the contract and monitoring the implementation of the contract.
The following transaction costs are distinguished:
- The search for information, which consists of the cost of resources, the time required to conduct a search, and the losses that are associated with the imperfection and incompleteness of the information acquired.
- Measurements. This includes the costs of measuring, measuring equipment, as well as the implementation of measures whose purpose is to ensure the safety of the parties from measurement errors and loss from errors.
- Conclusion of contracts and negotiations.
- Specifications and protection of property rights. This includes the costs of maintaining the arbitration tribunal, courts, government agencies, the costs of resources and time required to restore the violated rights, as well as losses caused by poor specification of rights and their unreliable protection.
- Opportunistic behavior.
Williamson examined transaction costs in terms of frequency and specificity of assets:
- 1st level. A one-time exchange between the parties in the anonymous market. There is no asset specificity, but the key is the price level. Assets: the subject of purchase and sale, money.
- 2nd level. A repeated exchange between parties of bulk goods. Frequency is increasing, but asset specificity is not yet available. A system of preferences arises. Repeated purchases and, therefore, we save on information, because we know that this product is of high quality.
- 3rd level. A recurring contract that relates to investments in specific assets. Specific assets are created for a specific transaction. Here losses arise when the contract for the sale of specific assets is terminated. There is a relationship around compensation for losses, or in the distribution of risk.
- 4th level. Investments in unique assets (idiosyncratic assets). An asset is rigidly attached to a specific function (technology). Idiosyncratic transactions require the joining of the firm. A fundamental transaction arises between firms, that is, an off-market type of connection, the interdependence of the parties on each other. Of course, the buyer can go to another supplier, but it is disadvantageous to both parties.
Transactional management costs are the costs of executing a contract between a firm and its employees. They include the costs of personnel management, protection from takeover, that is, the costs of creating, maintaining and changing the organization itself. Also highlighted are the operating costs of the organization, the costs associated with the physical crossing of goods and services at the borders of related manufacturing processes.
The problem of updating and changing forms of documentation is also transaction costs.
The magnitude of this type of cost depends on the behavior of individuals. Therefore, investment is necessary to create a favorable climate at the enterprise. The big problem is measuring this type of expense.