Transaction Cost SSP Table following Douglass North

Situation Structure Performance
Transaction Cost to achieve gains from trade. 1. Markets

Factor ownership to A or B

2. Hierarchy-inside firm.

1. Affects who uses resource and thus efficiency says Coase

2. Cheaper coordination, but lose high powered incentives.

"Cost of measuring the valuable attribute of what is being exchanged." North p.27

Commodities, services & performance of agents, 29


Cost of writing down all the attributes that are to be traded even if they could be measured.

1. Auction markets.

2. Personalized exchange.


Common set of values.

Kinship ties.

Ostracism as sanction.

3. Medieval trade fairs.

Elaborate ritual & religion.

Merchant codes.

Standard weights and measures. ISO, GAB.

4. Third-party enforcement

Contract law fills in necessarily incomplete contracts and unknowns at time of writing.

1. "Forecloses complex exchange. Non-specialization.

Opportunism, shirking, cheat.


2. Small scale, limited specialization.

3. Increased long distance trade with strangers.

4. Improved long distance trade with strangers.

"Cost of protecting rights & policing & enforcing agreements." North 27

The result of third party sanctioning of cheaters is HEC. (With Ec of scale).

Benefits every potential trader.

Interdependence: Do we have to choose sides on the basis of fairness or overall result?

Is there a self-revealing truth to be reached impartially?

Disputes over the meaning of words.

Where is the blood?

1. Status: Bearing sanctioning cost is right thing to do.

2. Market w/o status: traders asked to volunteer to sanction others.

3. Adm: State hires enforcers, or private associations.

(Rules governing behavior of the enforcers. Helps if judges have learned status habits.)

1. No free riders, but limited in scope. But remember the theme of "The Crucible."


2. Free riders.

3. Few unwilling riders.

Unwilling riders?

Possible for enforcers to have self interest. Meaning of impartiality?

Get out of your armchair and look at court cases.