A Probabilistic Model for Total Cost of Purchasing

Following to the publication in 1937 of the famous paper by Ronald Coase, who in 1991 won the Nobel Prize in Economics for the introduction of transaction costs, numerous contributions appeared in the related literature. Nowadays transaction costs are universally accepted, but researchers in the field agree on the difficulty in measuring and quantifying them. Motivated by such a research gap, this paper presents a model for the buyer/seller transaction based on probabilistic reasoning. In this contribution the additional costs of purchasing, that are a part of transaction costs, are divided into ex ante (drafting and negotiating agreements) and ex post (monitoring and enforcing agreements) costs. The model is tested in a simulation environment for the supply of a customized product and the obtained results are compared with the actual data of the purchasing, confirming the model suitability. Hence, the model is able to evaluate the total cost of purchasing before the transaction takes place and may be employed by the buyer to forecast the cost of a purchase and take decisions accordingly. A case study in the field of the construction industry shows the effectiveness of the proposed model by validating its results with experimental data.