Transaction costs comprise negotiation, adaptation, and enforcement expenses that models ignore
Evidence
I would like to suggest that the transaction cost literature (associated notably with Williamson 1975; 1985) can tell us something about the role of trust in the economy. As the term ‘transaction cost’ suggests, this literature is concerned with the organizational implications of the costs of making a transaction. This includes not only the cost of reaching an agreement satisfactory to both sides, but also that of adapting the agreement to unanticipated contingencies and of enforcing its terms. … The relation of transaction costs to the economy parallels that of friction to a physical system: it is often ignored in formal models but is none the less of great practical significance. — Diego Gambetta, Trust - Making and Breaking Cooperative…, 2516
Categorization
Category: Definitional Content
- DEFINE: Defines the three components of transaction cost — negotiation, adaptation, enforcement — which grounds the Luhmann/Hardin synthesis of what observability costs.
- XREF: Connects to Hardin’s trust framework: enforcement as the observable constraint on opportunistic behavior.
Broader Connections
- Economists treat trust as background rather than transaction cost
#expands(0.85) — Diego Gambetta, Trust - Making and Breaking Cooperative…, 772 - Humanitarian and counternarcotics spending function as bases-related costs omitted from official tallies
#exemplifies(0.78) — David Vine, Base Nation_ How U.S. Military Bases…, 635 - Contract data by place of performance can misattribute war support work to neutral countries
#exemplifies(0.75) — David Vine, Base Nation_ How U.S. Military Bases…, 1550