International Journal of

Business & Management Studies

ISSN 2694-1430 (Print), ISSN 2694-1449 (Online)
DOI: 10.56734/ijbms
Relationship Between Economics of Trust and Transaction Cost: A Brief Exposition


Survival of 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.