enterprise to some degree depends on how to manage transaction cost. It is more
so in a highly competitive market with competitive products such as
technology-based products. In
economics, the theory of transaction costs is based on the assumption that
people are influenced by
competitive self-interest. Transaction cost economy which was developed by
Williamson (1981) is based on uncertainty
and unpredictability in the world. Asset specificity, organizations that enter
into transactions find it expensive to leave them, inherent opportunistic
behavior of individuals in an economic transaction making it harder for
contractual agreements to be enforced fully after a long period of time.
Although the transaction cost has been extensively discussed and used in supply
chain management field, no economic theoretical arguments has been advanced as
to how transaction cost help improving economic growth. This paper attempts to
explain how transaction cost could add to economic growth.