Economics Dictionary of Arguments

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Shirky I 29
Transaction Costs/Institutions/Coase/Shirky: each institution has to invest considerable effort to maintain its own structure and internal discipline. Self-preservation can become the ultimate goal. This type of transaction costs is one of the fundamental limitations of institutions of all kinds.
Transaction costs/Coase/Shirky: Ronald Coase answered in his famous essay of 1937 "The Nature oft he Firm" (1) why there are companies at all: They make it possible to reduce transaction costs.
Shirky I 30
In the end, it is cheaper to organise workers in a company than to have them all competing against each other in the labour market. Transaction costs arise, for example, if options are to be discovered and agreements between participants have to be concluded. A company is successful if the costs of managing employees are lower than the potential profit from it.

1. R. H. Coase, Economica 4(16), November 1937, pp. 386-405, also at

Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution.
The note [Author1]Vs[Author2] or [Author]Vs[term] is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition.
Coase, Ronald
Shirky I
Clay Shirky
Here Comes Everybody: The Power of Organizing Without Organizations New York 2009

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