Transaction costs and information systems

Transaction cost theory has often been used to support to support the idea that information and communication technology (ICT) can reduce imperfection in the economic system. Electronic markets and hierarchies have repeatedly been described as solutions to inefficiencies in the organisation of transactions in complex and uncertain settings. Far from criticising this assumption, this paper highlights the limits associated with this application of transaction cost theory that has been prevalent in IS research. Building on the concepts first proposed by Ciborra, the paper argues that information-related problems represent only some of the elements contributing to transaction costs. These costs also emerge due to the interdependencies among the various factors contributing to their growth. The study of the consequences associated with ICT design and implementation, grounded in transaction cost theory, should therefore consider the overall implication ICT has on these interdependences and not only the direct effect it has on on information flow, distribution, and management.