Abstract:The new institutional economics is preoccupied withthe origins, incidence, and ramifications of transaction costs. Indeed, if transactioncosts are negligible, the organization of economic activity is irrelevant,since any advantages one mode of organization appears to hold over another willsimply be eliminated by costless contracting. But despite the growingrealization that transaction costs are central to the study of economics,'skeptics remain. Stanley Fischer's complaint is typical: "Transactioncosts have a well-deserved bad name as a theoretical device ... [partly] becausethere is a suspicion that almost anything can be rationalized by invokingsuitably specified transaction costs."2 Put differently, there are toomany degrees of freedom; the concept wants for definition.
