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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 13:
Transaction Cost, Institutions, and Evolution

Karl Wärneryd ()

Abstract: We suggest an operational definition of transaction cost as the expected value of strategy information in games played by individuals randomly matched from a large population. We relate the concept of a transaction cost minimum to those of Nash equilibrium, efficiency, and evolutionary stability, and apply it in a simple model of the Coasean firm. In particular, we identify circumstances in which evolutionary dynamics will minimize transaction cost, which allows various informal hypotheses about the relation between institutional evolution and transaction cost to be addressed in a precise sense.

Keywords: Transaction costs; evolutionary game theory; social institutions; (follow links to similar papers)

JEL-Codes: C72; D23; D61; D81; (follow links to similar papers)

22 pages, April 1994

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This paper is published as:
Wärneryd, Karl, (1994), 'Transaction Cost, Institutions, and Evolution', Journal of Economic Behavior and Organization, Vol. 25, pages 219-239



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