Editing Transaction cost (section)

== History ==

[[Image:Market-Hierarchy-Model.png|300px|right|thumb|The pool shows institutions and market as a possible form of organization to coordinate economic transactions. When the external transaction costs are higher than the internal transaction costs, the company will grow. If the internal transaction costs are higher than the external transaction costs the company will be downsized by outsourcing, for example.]]
The idea that transactions form the basis of an economic theory was introduced by the [[Institutional economics|institutional economist]] [[John R. Commons]] in 1931. He said that:

{{Blockquote|text=These individual actions are really trans-actions instead of either individual behavior or the "exchange" of commodities. It is this shift from commodities and individuals to transactions and working rules of collective action that marks the transition from the classical and hedonic schools to the institutional schools of economic thinking. The shift is a change in the ultimate unit of economic investigation. The classic and hedonic economists, with their communistic and anarchistic offshoots, founded their theories on the relation of man to nature, but institutionalism is a relation of man to man. The smallest unit of the classic economists was a commodity produced by labor. The smallest unit of the hedonic economists was the same or similar commodity enjoyed by ultimate consumers. One was the objective side, the other the subjective side, of the same relation between the individual and the forces of nature. The outcome, in either case, was the materialistic metaphor of an automatic equilibrium, analogous to the waves of the ocean, but personified as "seeking their level". But the smallest unit of the institutional economists is a unit of activity – a transaction, with its participants. Transactions intervene between the labor of the classic economists and the pleasures of the hedonic economists, simply because it is society that controls access to the forces of nature, and transactions are, not the "exchange of commodities", but the alienation and acquisition, between individuals, of the rights of property and liberty created by society, which must therefore be negotiated between the parties concerned before labor can produce, or consumers can consume, or commodities be physically exchanged".|sign=[[John R. Commons]]|source=''Institutional Economics'', American Economic Review, Vol.21, pp.648-657, 1931}}

The term "transaction cost" is frequently and mistakenly thought to have been coined by [[Ronald Coase]], who used it to develop a theoretical framework for predicting when certain economic tasks would be performed by [[business organizations|firms]], and when they would be performed on the [[Market (economics)|market]]. While he did not coin the specific term, Coase indeed discussed "costs of using the price mechanism" in his 1937 paper ''[[The Nature of the Firm]]'', where he first discusses the concept of transaction costs, marking the first time that the concept of transaction costs was introduced into the study of enterprises and market organizations. The term "Transaction Costs" itself can be traced back to the monetary economics literature of the 1950s, and does not appear to have been consciously 'coined' by any particular individual.<ref name="Kissell">[[Robert Kissell]] and [[Morton Glantz]], ''Optimal Trading Strategies'', AMACOM, 2003, pp. 1-23.</ref>

Transaction cost as a formal theory started in the late 1960s and early 1970s.<ref>{{Cite web|last1=Ketokivi|first1=Mikko|last2=Mahoney|first2=Joseph T.|date=2017|title=Transaction Cost Economics as a Theory of the Firm, Management, and Governance|url=https://oxfordre.com/business/view/10.1093/acrefore/9780190224851.001.0001/acrefore-9780190224851-e-6|access-date=2020-11-01|website=Oxford Research Encyclopedia of Business and Management|language=en|doi=10.1093/acrefore/9780190224851.013.6|isbn=9780190224851}}</ref> And refers to the "Costs of Market Transactions" in his seminal work, ''[[The Problem of Social Cost]]'' (1960). 

Arguably, transaction cost reasoning became most widely known through [[Oliver E. Williamson]]'s ''Transaction Cost Economics''. Today, transaction cost economics is used to explain a number of different behaviours. Often this involves considering as "transactions" not only the obvious cases of [[buying]] and [[selling]], but also day-to-day emotional interactions and informal [[gift]] exchanges. Williamson was one of the most cited social scientists at the turn of the century,<ref name=":1">{{Cite journal|last=Pessali|first=Huascar F.|date=2006|title=The rhetoric of Oliver Williamson's transaction cost economics|journal=Journal of Institutional Economics|volume=2|issue=1|pages=45–65|doi=10.1017/s1744137405000238|s2cid=59432864|issn=1744-1382}}</ref> and was later awarded the 2009 [[Nobel Memorial Prize in Economics]].<ref>Special Issue of Journal of Retailing in Honor of The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2009 to Oliver E. Williamson, Volume 86, Issue 3, Pages 209-290 (September 2010). Edited by [[Arne Nygaard]] and [[Robert Dahlstrom]]</ref>

Technologies associated with the [[Fourth Industrial Revolution]] such as distributed ledger technology<ref>{{Cite journal|last1=Roeck|first1=Dominik|last2=Sternberg|first2=Henrik|last3=Hofmann|first3=Erik|date=2019|title=Distributed ledger technology in supply chains: a transaction cost perspective|journal=International Journal of Production Research|language=en|volume=58|issue=7|pages=2124–2141|doi=10.1080/00207543.2019.1657247|issn=0020-7543|doi-access=free}}</ref> and blockchains may reduce transaction costs when compared to traditional forms of contracting.