Thursday, August 10, 2017

Noah Smith — Markets Don't Work for Everything

Finally, transaction costs. Transaction cost is on the level of economic rent. Vitally important to understanding economics, finance and business, and generally ignored.
The problems with markets mainly fall into a broad category that economists like to call “transaction costs.” That term refers to any cost people pay when they engage in arms-length market transactions. It’s not just sales taxes or swipe fees for credit cards. Market exchanges require time and effort to match a buyer with a seller, to verify that counterparties are trustworthy, to negotiate prices and to verify whether the counterparty delivered the desired results.
Economist Ronald Coase realized that this is why companies exist in the first place. Companies are like little miniature governments -- instead of negotiating a monetary payment each time you file a report or write some code or do an hour of work, your boss simply tells you to do it, and you do it. The long-term, implicit, unstated economic relationships within a company cut down on time and effort. It’s no great stretch to think that many human social institutions -- communities, governments, even groups of friends -- accomplish a similar function.
Bloomberg View
Markets Don't Work for Everything
Noah Smith, Contributor


Kaivey said...
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Kaivey said...

A good article. The libertarian idea of markets for everything is totally repellent. Libertarianism is simple childish thinking. Libertarians are not the intellectuals they think that are, more like obnoxious 'smart Alec' school children.