Transaction Costs and Institutions: Investments in Exchange

Transaction Costs and Institutions: Investments in Exchange∗

This paper proposes a simple model for understanding transaction costs – their composition, size and policy implications. We distinguish between investments in institutions that facilitate exchange and the cost 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 allocati...

Institutions, Transaction Costs, and Entry Mode Choice in Eastern Europe

That multinational enterprises entering a new market must adapt their strategies to the host country environment has been a hallmark finding in the international business literature. In recent years, increasing attention has been paid to the adaptation of these strategies to the demands of the institutions in the host economies (Oxley, 1999; Peng, 2000). Institutions are important for the funct...

Sequential Exchange with Stochastic Transaction Costs ∗

We analyze the bilateral trade of divisible goods in the presence of stochastic transaction costs. Mutual best-response conditions are applied to a model of optimal investment under uncertainty. The first-best solution involves a single transaction, but such behavior is not incentive compatible without courtenforceable contracts. We solve for a second-best policy in which some gains from trade ...

Transaction Costs , Politics , Regulatory Institutions , and Regulatory Outcomes

In order to provide a more complete framework for assessing the efficiency of government intervention, it is necessary to move away from the idealistic perspective typically found in the normative approach to traditional Public Economics. Such a move requires that the government be viewed not as a single, monolithic entity, but as a number of different government bodies with their own constitue...

Online Appendix to “Sequential Exchange with Stochastic Transaction Costs”