The economics of transaction costs : theory, methods, and applications / P.K. Rao.

TABLE OF CONTENTS

Part I Theory and methods

Introduction 3
1 Background 5
1.1. Introduction 5
1.2. Transaction costs: concepts and assumptions 6
1.3. Fixed costs, variable costs and transaction costs 16
1.4. Bounded rationality, uncertainty and irrationality 17
1.5. The comprehensive definition and framework 19
1.6. Conclusions 26

2. Elements of industrial organization 26
2.1. Introduction 26

2.2. Economics of the firm 27
2.3. Principal-agent theory 36
2.4. Technical innovation 37
2.5. Conclusions 38

3. Economic externalities 41

3.1. Introduction 41
3.2. Externalities and transaction costs 42
3.3. Coasean proposition and neo-coasean perpectives 45
3.4. Market failures and institutional inefficiencies 52
3.5. Network externalities 56
3.6. Conclusions

4. New neoclassical economics 60

4.1. Introduction 60
4.2. Marginality principles and economic optimality 61
4.3. Economic growth and development 67
4.4. The economics of free trade 72
4.5. The economics of structural adjustment lending 76
4.6. Benefit-cost analysis 84
4.7. Conclusions 86

5. New institutional economics 88

5.1. Introduction 88
5.2. Concepts and approaches 89
5.3. Trust, co-operation and social capital 92
5.4. Expectations, reputation, credibility and commitments 92
5.5. Political economy and institutional efficiency 97
5.6. Contestable markets and governance 100
5.7. Regulations and rent seeking 101
5.8. Conclusions 103

PART II APPLICATIONS

Introductions 107
6. Law and economics 109

6.1. Introduction 109
6.2. Economics of litigation 110
6.3. Property rights and liability rules 115
6.4. Economics of contracts 117
6.5. Conclusions

7. Behavioral economics 128

7.1. Introduction 128
7.2. Relative profit maximization 129
7.3. Habit formation and irrationality 130
7.4. Norms, customs and traditions 134
7.5. Economics of regulatory compliance 139
7.6. Conclusions 140

8. Organizations theory 141

8.1. Introduction 141
8.2. Hierarchies and decentralization 142
8.3. The design of incentives 144
8.4. The design of the organizations 145
8.5. Conclusions 151

9. Environmental economics 152

9.1. Introduction 152
9.2. Markets and environmental regulation 153
9.3. Industrial emissions trading 156
9.4. Adaptation, sustainability and climate change 159
9.5. Environmental conflicts and mediation 166
9.6. Conclusions 169

10. Perspectives 170

10.1. New approaches and applications 170
10.2. Directions for research 173
References 176
Index 195



Includes bibliographical references (p. 176-194) and index.