Transaction Behavior in Nonmarket Settings: Revisiting Transaction Cost Economics Theory

Abstract

This study focuses on changes in transaction costs over time in nonmarket settings. Traditional Williamsonian transaction cost economics theory shows little concern with time. However, this study reveals that time is a crucial factor in the fluctuation of transaction costs in nonmarket settings: Transaction costs increase in the initial and middle phases of a transaction. But in the long term, they may increase or decrease and are affected considerably by whether the rules, procedures, and protocols governing the transaction are effective (green tape) or ineffective (red tape). In contrast, traditional transaction cost economics assumes a gradual decrease in transaction costs over time. The passage of time and the red tape or green tape governing the transaction influence stakeholders transaction behavior in nonmarket settings.