Transaction Costs

Question 1

2 problems assosciated with motivation problem

Answer 1

Imperfect commitment and asymmetric information

Question 2

Discuss Hold-up problem

Question 3

Transaction specific asset

Answer 3

an asset that cannot be used in another transaction without sacrificing signifcant value of asset

Question 4

Discuss problem due to asymmetric ifnormation

Question 5

Human Factors responsible for transaction costs

Answer 5

• bounded rationaility

- opportunistic behaviour

Question 6

Attributes of transactions

Answer 6

• Asset Specificity
• Frequency and duration
• Uncertainty and Complexity
• Difficulty in performance measurement
• connectedness to other transactions
• Atmosphere

Question 7

solutions to transaction costs

Answer 7

• screening
• signalling
• relational contracts
• implicit contracts
• joint venture
• integration
• creating a second source to improve post-contractual bargaining position.

Question 8

Limitations to transaction costs

Answer 8

• hard to pick which way to reduce transaction cost

- hard to seperate transaction costs to production costs for example.