Transaction cost theory

Abstract

The transaction cost theory focuses on how economic changes are managed the transaction cost theory based on economic operations as the level of analysis is based on limited rationality, opportunism. Transactions are settled within the organizational structure according to their characteristics. These characteristics are stated as uncertainty, frequency, asset characteristics and conformity. As the uncertainty and the need for specific assets increase, the risk of transaction increases. When the dangers of processing are negligible, the least cost-effective management will be preferred as the risk increases, the cost will increase and organizations will develop different methods to reduce costs. At this point, organizations aim to establish management mechanisms that minimize transaction costs, develop specific strategies and develop mechanisms where processes can be structured. This theory deals with the frequency of transactions associated with resources, its appropriateness for the organization, the extent of uncertainty, if any, and the extent to which the resource is specific; These are all factors that increase the transaction costs the use of non-specific assets, vertical integration, long-term contracts, partial ownership agreements and contracts that require parties to invest at the same level are different methods used by organizations to reduce transaction costs.