Transaction Costs and the Efficiency of Economic Processes

It has been a long time since the transaction costs concept appeared in Economics. Economic analysis and modeling at micro and macroeconomic levels have been taking into consideration this specific category. From the very beginning, transactions costs were perceived as a factor driving efficiency of allocation of scarce resources. In the ZTC world optimal solutions are possible. The fact that we operate in a non-ZTC world makes it possible to strive for moving closer to this utopia. This is a state for maximizing benefits of us all simply by imposing legal and institutional frameworks that grant lower transaction costs. The question about a way to achieve evolution in the desired direction is however not simple to answer. One requires not only to recognize transactions costs properly, but also measure them to use this category as a criterion for evaluating reforms and their total influence on the efficiency of economic processes. The aim of the paper is to present several ideas on capturing transaction costs of a legal framework and an institutional framework. This should allow to show how the costs are related to the general efficiency of agents interacting within these two frameworks. For a legal framework a simple AC/TC model is used. The model for the institutional framework is in the phase of developing and can not be characterized at this stage. Both models shall allow to bind design of each framework with associated transaction costs and the efficiency of the underlying economic processes affected by both frameworks.