Essential Coase: What Are Transaction Costs?

One of Ronald Coase’s most significant contributions to our understanding of how the economy works is his explanation of the importance of transaction costs—those costs that people incur when they exchange goods and services with others. Transaction costs include the time it takes to find someone with which to trade, the time and costs to negotiate the conditions of the exchange, and the costs to enforce the contract afterwards, if necessary. Prior to Coase, economists greatly underestimated the importance of transaction costs, but these costs are present for every exchange, and can impede economic activity if they’re too high. Watch this video to learn more, and visit www.EssentialCoase.org.