Characteristics of Transactions: a New Approach

Transaction is the main concept of the New Institutional Theory (NIT). According to specialists (R. Coase, O. Williamson etc.), transactions can be described by the following characteristics: asset specificity, uncertainty, frequency, transformation costs and transaction costs. Obviously, these characteristics can be divided into two groups: internal characteristics (asset specificity, uncertainty and frequency) and cost characteristics (transformation costs and transaction costs). In my opinion, this approach has three problems: there is no place for investments (of course, they may be perceived as a part of transformation costs, but it seems to be over simplistic), there is no direct correspondence between internal characteristics and cost characteristics (one may say that there is no need for such a correspondence, but it would be logical to expect that this correspondence does exist) and these characteristics are not used as a measure of integration. I propose to consider investments as an independent cost characteristic of transaction and to establish the following correspondence between internal characteristics and cost characteristics: Asset specificity depends on investments; Uncertainty is reduced by transaction costs; Frequency is linked to transformation cost as transformation cost is based on scaling effect. Therefore, I propose to include investments into cost characteristics of transactions as a separate characteristic. Uncertainty and frequency can be used as indicators of integration of economic agents. An ordinal measure of uncertainty can be constructed on the basis of pricing mechanism used by two companies – the bigger is the share of free market factors within this mechanism, the higher is the level of uncertainty (and the lower the degree of integration).