Question. The essence of transaction costs

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Cost value

Until the 13th century, market trade in Europe was difficult, since buyers and sellers were unable to obtain information about each other, as well as about the products that were transferred through transactions. There was also a lack of price awareness, which became the biggest stumbling block. Almost all goods and services were sold through closed auctions, and in them the cost of the same product could vary every day, and the range was simply amazing. This significantly complicated and slowed down trade, especially foreign trade, since agents did not have sufficient knowledge either about the products or their real value. In this situation, transaction costs were very high, which most often completely devalued the goods purchased and sold.

However, in 13th-century Europe, fairs began to be practiced, where consumers and sellers could obtain information about relative prices. Also at fairs one could learn about the supply and demand of certain types of goods and services, which greatly facilitated trade and marked the beginning of the emergence of the modern market. This situation made it possible to free up assets that were previously used to search for information and direct them to the development of production and more useful needs.

Types of transaction costs

Even in the conditions of a modern developed market and the availability of information, it is impossible to do without transaction costs. The costs that the seller and buyer must bear before concluding a transaction can sometimes be very high, so both parties try to make the most efficient use of the budget allocated to them. Transaction costs and ways to save them include:

rationalization of costs for searching for alternative transactions, this group includes searching for information about the partner and the price of the product;
optimization of costs for measuring the quantitative and qualitative characteristics of the subject of the transaction;
reducing the costs of negotiating and signing a contract;
costs of protecting the contract from infringement by third parties;
reduction of costs for monitoring compliance with the terms of the contract by partners.

Ways to reduce costs

Each of the groups presented can be very costly for both the seller and the buyer. If you do not properly distribute transaction costs, you may end up completely losing the benefits of completing a transaction.

Let's look at how you can reduce costs without compromising the conclusion of the contract.

Search for alternative deals

The emergence of the market made it possible for buyers and sellers to navigate prices, supply and demand. However, to make a serious deal, both parties must learn as much as possible about their partner. In the simplest example, you can find the cheapest product if you visit several stores. However, this will require spending time, money on travel or fuel for the car. If the difference in price is several tens of rubles, and you spent several hundred on travel, then transaction costs are considered unjustified and reduce the initial value of the product.

To avoid this situation, you can use special catalogs that contain information on prices, visit the websites of different companies, choosing the most optimal option. Large firms should use exactly the same scheme; now they can hire agents who will provide databases and other information about the partner for a certain fee, but one that will not harm the future transaction.

Sellers can make it easier for buyers to find information, especially in their interests. To do this, one simple trick is practiced - establishing uniform prices. This technique is used by large brands, so they never lose regular customers due to the difference in cost. For example, the price of a scarf from a famous fashion house will be the same in Moscow, Paris, and Tokyo.

Advertising is another method of eliminating consumer ignorance about companies and their services or products. Just one small ad on a carton of milk or in the daily morning newspaper gives a striking effect, because among the multimillion-dollar audience there will certainly be representatives of the advertiser's target audience.

Searching for information about partners contains the following types of costs:

direct (organization of advertising campaigns, receptions, visits, etc.);
indirect (participation in fairs, exhibitions and other events);
communication (costs of telephone conversations, mailings, etc.).

These costs can be reduced by presenting information to a wide range of potential partners, for example, advertising can be given on national radio instead of regional. Optimization of costs for communication and participation in specialized events is carried out only after a detailed study and analysis of the situation in the company, so that the savings are justified and do not negatively affect the reputation.

Measuring qualitative and quantitative characteristics of goods and services

In order to be confident in the real value of the purchased product or service, the buyer must make sure that its qualitative and quantitative characteristics are higher than the amount of money or other good for which he exchanges it. To do this, you need to make detailed measurements, sometimes the costs of these can be much higher than the costs of searching for prices.

The problem with measurement is that some qualities are measured quite easily, for example, weight, volume and similar characteristics, since there are accepted international systems of measures that significantly reduce transaction costs. But there are also qualities that require a lot of resources to measure, for example, we cannot determine the taste of an apple unless we try it, and it is not a fact that all apples from a 1-ton batch will be the same. In order to protect himself from manipulation by the seller, the buyer must carry out measurements until the costs for them do not exceed the real value of the goods.

A consumer can receive a product or service, the quality of which can be measured before concluding a transaction, or during its process, but there are also categories of goods whose characteristics can only be learned in the process of using them.

Based on the transaction costs that arise during the measurement of quality characteristics, goods and services can be divided into the following groups:

researched or searchable – those goods and services whose qualitative characteristics can be determined during their search;
experimental goods – goods and services, the quality characteristics of which are revealed only experimentally during their use;
confidential - goods and services, the quality characteristics of which can be determined during the transaction, but additional information appears only after a very long time, in some cases they remain completely unknown to the buyer (example: medical care, repairs, etc. ).

Not only the buyer, but also the seller may be interested in conducting research on the qualitative characteristics of goods and services. Searching for information makes it possible to reduce or increase the price depending on who owns it. In order to reduce the costs of this type of activity, you can use the services of various agents, this will prevent duplication of data. Also, significant savings will come from the correct distribution of obligations; if you entrust the task to the party that can do it efficiently, then costs will be significantly reduced. Premature production of information should not be allowed; if it is provided before the decision is made, then these costs will be unjustified.

Negotiation and conclusion of contracts

The process of negotiating and concluding contracts can also be fraught with high costs. To properly organize these processes, companies must use the services of lawyers and notaries, and they cost a lot. Losses can also be measured in time terms, since incorrect paperwork significantly slows down the process.

To minimize losses, you can use a standard simple scheme for creating a standard agreement. The company determines which clients will contact it for services and draws up a universal agreement in which the necessary points can be outlined. In Germany, such an agreement is called “dictated”; the client has two options: accept your terms or not. Companies can significantly reduce the transaction costs of negotiating with the help of such a document, but this may have a negative impact on their reputation.

Monitoring compliance with contract terms by partners

This is a whole separate set of costs that companies are required to bear in order to protect themselves from unlawful actions on the part of partners. To avoid excessive control costs, you can use insurance services; they will protect both parties from unpleasant “surprises.” The reputation mechanism also plays an important role in control, which is why it is easier for large companies to gain trust than small and little-known ones.

Feasibility of saving

Transaction market costs will certainly be incurred by companies that trade with each other.

The amount of money spent on concluding a transaction can be significantly reduced if you correctly approach the distribution of all responsibilities between employees and agents performing certain tasks.

You should not get carried away with excessive optimization, as this can lead to the acquisition of a completely low-quality product or service. However, compliance with cost-saving measures is also necessary, since high transaction costs can lead to depreciation of the purchased product.

A significant number of types of classifications of transaction costs is a consequence of the multiplicity of approaches to the study of this problem. O. Williamson distinguishes two types of transaction costs: ex ante and ex post. Ex ante costs include the costs of drafting the agreement and negotiating it. Ex post costs include organizational and operational costs associated with the use of the governance structure; costs arising from poor adaptation; costs of litigation arising in the course of adapting contractual relations to unforeseen circumstances; costs associated with fulfilling contractual obligations

K. Menard divides transaction costs into 4 groups:

Isolation costs;

Costs of scale;

Information costs;

Costs of behavior.

The most famous domestic typology of transaction costs is the classification proposed by R. Kapelyushnikov

1. Costs of searching for information. Before a transaction is made or a contract is concluded, you need to have information about where you can find potential buyers and sellers of the relevant goods and factors of production, and what the current prices are. Costs of this kind consist of the time and resources required to conduct the search, as well as losses associated with the incompleteness and imperfection of the acquired information.

2. Negotiation costs. The market requires the diversion of significant funds for negotiations on the terms of exchange, for the conclusion and execution of contracts. The main tool for saving this kind of costs is standard (standard) contracts.

3. Measurement costs. Any product or service is a set of characteristics. In the act of exchange, only some of them are inevitably taken into account, and the accuracy of their assessment (measurement) can be extremely approximate. Sometimes the qualities of a product of interest are generally immeasurable, and to evaluate them one has to use surrogates (for example, judging the taste of apples by their color). This includes costs for the appropriate measuring equipment, for carrying out the measurement itself, for implementing measures aimed at protecting the parties from measurement errors and, finally, losses from these errors. Measurement costs increase with increasing accuracy requirements.

Enormous savings in measurement costs have been achieved by mankind as a result of the invention of standards for weights and measures. In addition, the purpose of saving these costs is determined by such forms of business practices as warranty repairs, branded labels, purchasing batches of goods based on samples, etc. 4. Costs of specification and protection of property rights. This category includes the costs of maintaining courts, arbitration, government bodies, the time and resources required to restore violated rights, as well as losses from their poor specification and unreliable protection. Some authors (D. North) add costs here. maintaining a consensus ideology in society, since educating members of society in the spirit of observing generally accepted unwritten rules and ethical standards is a much more economical way to protect property rights than formalized legal control

5. Costs of opportunistic behavior. This is the most hidden and, from the point of view of economic theory, the most interesting element of transaction costs. There are two main forms of opportunistic behavior. The first is called moral hazard. Moral hazard occurs when one party in a contract relies on another party, and obtaining actual information about his behavior is costly or impossible. The most common type of opportunistic behavior of this kind is shirking, when the agent works with less efficiency than is required of him under the contract.

If the personal contribution of each agent to the overall result is measured with large errors, then his reward will be weakly related to the actual efficiency of his work. Hence the negative incentives that encourage shirking. In private firms and government agencies, special complex and expensive structures are created whose tasks include monitoring the behavior of agents, detecting cases of opportunism, imposing penalties, etc. Reducing the costs of opportunistic behavior is the main function of a significant part of the management apparatus of various organizations.

The second form of opportunistic behavior is extortion. Opportunities for it appear when several production factors work for a long time in close cooperation and become so accustomed to each other that each becomes indispensable and unique for the other members of the group. This means that if some factor decides to leave the group, then the remaining participants in the cooperation will not be able to find an equivalent replacement on the market and will suffer irreparable losses. Therefore, the owners of unique (in relation to a given group of participants) resources have the opportunity for blackmail in the form of a threat to leave the group. Even when “extortion” remains only a possibility, it always turns out to be associated with real losses. (The most radical form of protection against extortion is the transformation of interdependent (interspecific) resources into jointly owned property, the integration of property in the form of a single bundle of powers for all team members).

In a market economy, a company’s costs can be divided into three groups: 1) transformational, 2) organizational, 3) transactional.

Transformation costs – costs of transforming the physical properties of products in the process of using production factors.

Organizational costs – costs of ensuring control and distribution of resources within the organization, as well as costs of minimizing opportunistic behavior within the organization.

Transaction and organizational costs are interrelated concepts; an increase in some leads to a decrease in others and vice versa.

The concept of transaction costs was introduced by R. Coase in the 1930s in his article “The Nature of the Firm.” It has been used to explain the existence of hierarchical structures that are antithetical to the market, such as firms. R. Coase associated the formation of these “islands of consciousness” with their relative advantages in terms of saving on transaction costs. He saw the specifics of the company's functioning in the suppression of the price mechanism and its replacement with a system of internal administrative control.

Transaction or transaction costs are the costs in the sphere of exchange associated with the transfer of property rights. There are usually five main forms of transaction costs:

1. costs of searching for information;

2. costs of negotiating and concluding contracts;

3. measurement costs;

4. costs of specification and protection of property rights;

5. costs of opportunistic behavior.

The most famous domestic typology of transaction costs is the classification proposed by R. Kapelyushnikov.

Enormous savings in measurement costs have been achieved by mankind as a result of the invention of standards for weights and measures. In addition, the goal of saving these costs is determined by such forms of business practices as warranty repairs, branded labels, purchasing batches of goods based on samples, etc.

4. Costs of specification and protection of property rights. This category includes the costs of maintaining courts, arbitration, government bodies, the cost of time and resources necessary to restore violated rights, as well as losses from their poor specification and unreliable protection. Some authors (D. North) add here the costs of maintaining a consensus ideology in society, since educating members of society in the spirit of observing generally accepted unwritten rules and ethical standards is a much more economical way to protect property rights than formalized legal control. In D. North’s interpretation, transaction costs “consist of the costs of assessing the useful properties of the object of exchange and the costs of ensuring rights and enforcement of their observance.” These costs inform social, political, and economic institutions.

The first is called “moral hazard”. Moral hazard occurs when one party to a contract relies on the other, and obtaining actual information about the subject's behavior is costly or impossible. The most common type of opportunistic behavior of this kind is shirking, when the agent works with less efficiency than is required of him under the contract.

The second is the so-called “extortion” (hold-up). Take, for example, a worker who has acquired some unique skills over many years of cooperation with the same company. On the one hand, in any other position his qualifications and skills would be of less value, which means his wages would be lower. On the other hand, the company receives greater returns from him than from any newcomer who is not familiar with the specifics of its activities. The worker and the firm become to a certain extent indispensable, “mutually specialized” in relation to each other. Under conditions of a bilateral monopoly, when none of the participants can find an adequate replacement on the market, additional net income arises - quasi-rent, which must somehow be divided between them. But it exists only as long as the cooperation lasts. Termination or non-resumption of the transaction threatens the complete loss of capital embodied in special assets.

This creates the ground for “extortion”. Each partner has the opportunity to blackmail the other by threatening to break off business relations with him. For example, a company may threaten an experienced worker with dismissal if he does not agree to a wage reduction. The landowner can blackmail the company that built the plant on his land by terminating the lease agreement. The purpose of such extortion is the appropriation of all quasi-rent or, at least, a sharp increase in one’s share in it.

The category of “transactions” covers both the material and contractual aspects of the exchange. It is understood extremely broadly and is used to refer to both the exchange of goods and various types of activities, and the exchange of legal obligations of long-term or short-term transactions, both requiring detailed documentation and involving a simple mutual understanding of the parties.

In order for a transaction to take place, it is necessary to collect information about the prices and quality of goods and services, agree on its terms, monitor the integrity of its implementation by the partner, and if she is still upset due to his fault, then in this case, in order to achieve compensation, it may be necessary put in a lot of effort. Therefore, transactions may require significant costs and be accompanied by serious losses. These costs are called “transaction” costs. They are the main factor determining the structure and dynamics of various social institutions.

The introduction of the concept of transaction costs into economic analysis was a major theoretical achievement. Recognition of the “non-free” nature of the very process of interaction between people made it possible to shed light on the nature of economic reality in a completely new way: “Without the concept of transaction costs, which is largely absent in modern economic theory, it is impossible to understand how the economic system works, to productively analyze a whole range of emerging problems, and also provide a basis for developing policy recommendations.”

Even a simple listing of the available definitions says a lot about its content: “the costs of exchanging property rights,” “the costs of implementing and protecting contracts,” “the costs of obtaining benefits from specialization and division of labor,” “the costs of coordinating and motivating the activities of economic agents.”

In other words, transaction costs could be defined as the costs of economic interaction, no matter what forms it takes: “Transaction costs cover the costs of making decisions, developing plans and organizing future activities, negotiating about its content and conditions - when two people enter into a business relationship or more participants. Costs of changing plans, revising the terms of the transaction and resolving controversial issues when this is dictated by changed circumstances; the costs of ensuring that participants comply with the agreements reached. Transaction costs also include any losses arising from the ineffectiveness of joint decisions, plans, concluded contracts and created structures; ineffective responses to changed conditions; ineffective protection of agreements. In a word, they include everything that, one way or another, is reflected in the comparative performance of various methods of allocating resources and organizing production activities.”

The category of transaction costs originates from two works by R. Coase - “The Nature of the Firm” (1937) and “The Problem of Social Costs” (1960). Coase himself initially attributed to them only the costs that arise when using the price market mechanism. Later, they began to include costs associated with the use of administrative control mechanisms. With such an expanded interpretation, the concept of transactions is permissible both for the relationships that develop between organizations and for the relationships that develop within them.

Part of the transaction costs, which can be considered preliminary, relates to the moment before the transaction (collection of information), the other occurs at the time of its execution (negotiations and conclusion of the contract), the third is of a post-contractual nature (security measures against opportunistic behavior, measures to restore violated property rights ).

Transaction costs can appear in explicit or implicit form. If they are so large that they completely block the possibility of a transaction, then they cannot be registered (since no transactions are made). But this does not make their impact any less real: after all, it is their excessively high potential level that forces economic agents to refuse inclusion in the exchange process. Thus, the total costs of society are made up of the costs of land, labor, capital and entrepreneurial ability.

Necessary, firstly, to transform the physical properties of various goods: their color, chemical composition, location, etc., and secondly, to establish interaction between the economic agents themselves (delimitation, protection, transfer and unification of property rights). If the level of “transformation” costs (as D. North called them) is determined primarily by technological factors, then the level of transaction costs is determined by institutional ones. As K. Arrow aptly puts it, transaction costs are “the costs of keeping economic systems running.”

Of course, this does not mean that these and other costs can be considered in isolation, without the existing relationship between them. For example, high transaction costs often predetermine the choice of production methods. (Thus, the blurring of property rights can lead to a refusal to invest in long-term assets and the predominance of labor-intensive technologies.) And, conversely, the emergence of new technologies can complicate or simplify the process of concluding transactions, leading to a reduction or increase in the costs associated with them.

One of the most important features of transaction costs is that they allow for significant economies of scale. There are constant components in all types of transaction costs: once information is collected, it can be used by any number of potential sellers and buyers; contracts are standardized; the cost of developing legislation or administrative procedures depends little on how many people are subject to them.

The role of transaction costs in the economic world, as noted above, is often compared with the role of friction in the physical world: “Just as friction interferes with the movement of physical objects by dissipating energy in the form of heat, so transaction costs prevent the movement of resources to users for whom they represent the greatest value, dispersing the usefulness of these resources throughout the economic process. Just as every known physical object is given a form that helps either minimize friction or obtain some useful effect from it (a wheel, for example, serves both). In fact, any institution known to us arises as a reaction to the presence of transaction costs and in order, apparently, to minimize their impact, thereby increasing the benefits of exchange.

Transaction cost theory. Transaction costs: essence and classification

"Transaction Cost Theory" considered an integral part of the “New Institutional Theory” - neo-institutionalism and is a theory of enterprise organization, the object of study of which is a multilateral agreement as a form of organization. Main representatives: Ronald Coase and John Commons.

This theory is based on the assumption that any action in an economic context is primarily associated with costs.

"Transaction" translated from Latin means “agreement”, “deal”. The fundamental definition of a transaction was given by John Commons in his book Institutional Economics (1931). According to Commons, the basis of any transaction is a conflict of interests, and the goal is to resolve this conflict through exchange, alienation and appropriation property rights and freedoms created by society.

Commons distinguished three types of transactions :

- Deal transaction (supposed equal status of the parties) – serves to carry out the actual alienation and appropriation of property rights and freedoms, and its implementation requires mutual consent of the parties, based on the economic interest of each of them.

- Control transaction (supposed hierarchical position of the parties) – the key in it is the relationship of management - subordination, which presupposes such interaction between people when the right to make decisions belongs to only one party.

- Rationing transaction (dominant position of the parties) – it preserves the asymmetry of the legal status of the parties, but the place of the managing party is taken by a collective body that performs the function of specifying rights. Rationing transactions include: the preparation of a company budget by the board of directors, the federal budget by the government and approval by a representative body, the decision of an arbitration court regarding a dispute arising between operating entities through which wealth is distributed.

- There is no control in the rationing transaction. Through such a transaction, wealth is allocated to one or another economic agent. Negotiation and contracting costs.

- The market requires the diversion of significant funds for negotiations on the terms of exchange, for the conclusion and execution of contracts. The main tool for saving this kind of costs is standard (standard) contracts. Measurement costs.

- Any product or service is a set of characteristics. In the act of exchange, only some of them are inevitably taken into account, and the accuracy of their assessment (measurement) can be extremely approximate. Sometimes the qualities of interest are generally immeasurable and to evaluate them one has to use surrogates (for example, judging the taste of apples by their color). This includes the costs of measuring equipment; on the actual measurements; to implement measures aimed at protecting the parties from measurement errors; for losses from these mistakes. Costs of specification and protection of property rights.

- This category includes the costs of maintaining courts, arbitration, government bodies, the time and resources required to restore violated rights, as well as losses from their poor specification and unreliable protection. Costs of opportunistic behavior.