Transaction costs

Per Bylund on twitter:

Why do scholars call "whatever cost I'm interested in" *transaction* costs? #TCE notes misalignment, costs of realigning trans to market!
— Per Bylund (@PerBylund) February 4, 2014

A good question which has be recognised for many years. As Coase himself has written,

Williamson agrees with what he terms my "grim assessment" of the position in 1970. However, he ascribes the non-use of my thesis, so often acclaimed as a "fundamental insight," to the fact that it has not been made "operational." As he said in 1975: "Transaction costs are appropriately made the centerpiece of the analysis but these are not operationalized in a fashion which permits one to assess the efficacy of completing transactions as between firms and markets in a systematic way." Williamson has reaffirmed this view in 1985 and 1986. I think it is largely correct.

The term is used too widely and can mean almost anything these days. When referring to what are now called "transaction costs" Coase was referring to the costs of using the market but today we see comments about transaction costs within firms! On this basis the boundaries of a firm are where transaction costs equal transaction costs.