What Are Transaction Costs?

Research in Law and Economics 14, 1991: 1-18

23 Pages Posted: 28 Jul 2021

Date Written: July 1, 1991


To the uninitiated, transaction costs are often mysterious at best and dubious at worst. Even among economists who use the term often, there are misunderstandings as to what transaction costs actually are. I argue that much of the transaction cost "image" is caused by the lack of a workable definition. In this essay, I define transaction costs as the cost of establishing and maintaining property rights. This definition illustrates that these costs arise out of more than information costs, that they are not just like taxes, and that they are necessary to explain any distribution of property rights.

Keywords: transaction costs, property rights, Coase, Coase Theorem

JEL Classification: K0, L0, O2, D0, D8

Suggested Citation

Allen, Douglas W., What Are Transaction Costs? (July 1, 1991). Research in Law and Economics 14, 1991: 1-18, Available at SSRN: https://ssrn.com/abstract=3882114

Douglas W. Allen (Contact Author)

Simon Fraser University ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
604-291-3445 (Phone)
604-291-5944 (Fax)

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