1.

What is TCE (transaction cost economics) Williamson (1985) defines TCE as A transaction occurs when a good or service is transferred across a technologically separable interface. One stage of activity terminates and another begins.

2. Market transaction costs Typical examples of transaction cost are market transaction costs and managerial transaction costs. In addition, political transaction costs should also be considered. These three transaction costs can be illustrated in two ways: one is the fixed transaction cost which is a particular investment for the establishment of institutional arrangements. The other is the variable transaction cost which is associated with the quantity of transactions. In order to carry out a market transaction, it is necessary to discover who it is that one wishes to deal with, to inform people that one wishes to deal with and to what terms, to conduct negotiations leading up to a bargain, to draw up the contract, to undertake the inspection needed to make sure that the terms of the contract are being observed, and so on (Coase 1960 p.1). Market transaction cost is constituted by information costs and bargaining costs. In real life, information is incomplete and there is uncertainty in the market. Thus, decision-makers do not know who will be trading a product in what conditions immediately or automatically. Both vendor and purchaser bargains to find the efficient and effective transactions and establish the specific trading conditions. 3. The importance of transaction costs When consumers want to buy a product or service, they have to take time and effort to obtain information about product quality to seek value for money in the first place. The costs of specifying and enforcing contracts became more important with the expansion of the market and growing organization in the second half of nineteenth century. As the economy becomes more specialized and urbanized, more and more exchanges are carried out between individuals who have no long-standing relations, that is, impersonal exchange. Rational consumers engage in more search and informationgathering activity (including purchasing information through middlemen, i.e., transaction services) as they come to know less and less about the persons from whom they buy their products. The second part is the effect of technological change in production and transportation on transaction services. The new capital intensive production techniques were often more profitable to operate (i.e.,

lower costs) at high output levels. Larger business organizations placed a premium on the coordination of inputs and outputs and on monitoring the numerous contracts involved in production and distribution. The third part is the declining costs of using the political system to restructure property rights. The consequence of this change was the further development of commissions which replaced the decision-making ability by executive departments of the government, and imposed transaction costs on the rest of the economy (Wallis & North 1988). Reference Coase, R.H. 1960, The Problem of Social Cost, Journal of Law and Economics, Vol. 3., pp.1-44. Wallis, J. and North, D.C. 1986, "Measuring the Transaction Sector in the American Economy," S.L. Engerman and R.E. Gallman, (eds.), Long Term Factors in American Economic Growth, Chicago: University of Chicago Press.

Williamson, Oliver E. 1985, The Economic Institutions of Capitalism, New York: The Free Press.