Transaction costs are those incurred in transactions between different parties. These costs include all the costs that an enterprise needs to make a transaction. It is to find the necessary contractors and quality control of the work performed, for example.
Transaction cost categories
The main categories of transaction costs include several factors. This is the search and negotiation of transactions, contractual relations, contract execution, and management.
The search and negotiation of transactions include all costs necessary for the entrepreneur to find a suitable counterparty, assess the degree of his reliability and discuss the terms of the transaction with him. These costs may vary depending on how complex the transaction is and how far apart the counterparties are.
Typically, contractual relationships involve legal costs, contract development, negotiation, and the study of legal rules that may affect the transaction. They may also be related to audit, valuation, and legal analysis of the transaction. In some cases, an entrepreneur may need to incur loss and risk insurance.
In addition, the execution of contracts includes several costs that are related to the execution of the transaction. These may include training costs, equipment and materials, transportation and storage costs, as well as labor costs.
Management includes costs related to transaction verification, documentation, and formalities. This may include audit costs, information collection and analysis, contract monitoring, and other incremental costs.
Practical examples of transaction costs
One practical example of transaction costs is the purchase of real estate. The buyer must pay the commission to the real estate agent, pay the lawyer, as well as pay various taxes and fees. This is except the value of the property itself.
Another example is the conclusion of an employment contract. In this case, transaction costs are related to the search for a candidate, conducting an interview, legal fees for the development and legal analysis of the contract, as well as the cost of training and adaptation of each new employee.
The impact of technology on transaction costs
Blockchain is one of the major technologies that affect transaction costs. Blockchain is a decentralized technology that allows traders to exchange data without intermediaries such as banks, government agencies, and lawyers. This helps entrepreneurs to reduce transaction costs qualitatively and speed up the transaction process.
Besides blockchain, smart contracts have another technology that can significantly reduce transaction costs. Smart contracts are programmable contracts that are automatically executed on the basis of certain conditions. They help the entrepreneur automate processes, reduce risks and reduce the need for traditional arbitrations.
Another technology that affects transaction costs is artificial intelligence and machine learning. These technologies are used for data analysis, customer preferences, risk assessment, and process automation. So it helps speed up transactions and significantly reduce costs.
Conclusion
Transaction costs play an important role in the economy, especially in international trade. Reducing these costs helps the entrepreneur reduce business costs and increase the efficiency of transactions.
There are several technologies that have the potential to significantly reduce transaction costs. These include blockchains, smart contracts, artificial intelligence, and machine learning. Optimization of transaction costs can be achieved by automating processes, using standardized contracts, and reducing risks. It helps businesses to become more efficient, so the economy of the firm will be more competitive.