More on Eship and Transaction Costs

5 September 2007 at 6:56 am Nicolai Foss Leave a comment

| Nicolai Foss |

As indicated here, I believe that transaction costs are key antecedents to opportunity discovery, that is, the exercise of entrepreneurship. The costs of establishing property rights to new discoveries, and the costs of combining and recombining resources, all transaction costs, influence which discoveries will be made. Here (or here) is an entirely different way of relating transaction costs and entrepreneurship, namely Steven Michael’s “Transaction Cost Entrepreneurship” which focus on transacting problems in the entrepreneur/consumer (user) interface. A fine piece that is highly recommended. Here is the abstract:

When offering a novel product, the entrepreneur desires the customer to choose to “buy” (from the entrepreneur) rather than to “make.” Transaction cost economics provides guidance to firms considering a make-versus-buy decision. In this paper we extend transaction cost economics to examine the novel transactions proposed by the entrepreneur. Application of the theory identifies three crucial considerations for the transaction: the cost of quality measurement, the risk of overconfidence by the entrepreneur (here termed identity risk), and the required cost of necessary transaction specific assets. By extending transaction cost analysis to cover novel transactions across customers, entrepreneurship can be analyzed using established theories and measures to generate novel propositions.