Institutions can reduce transaction costs
Exchange becomes easier when promises and information are credible. Contracts reduce uncertainty by specifying obligations and remedies. Courts, reputation systems, standardized measurements, and disclosure rules can lower the cost of finding partners, verifying quality, negotiating, and enforcing an agreement. Lower transaction costs allow more mutually beneficial exchanges to occur. Transaction costs are the resources used […]
Property rights change the payoff to stewardship
Control and transferability influence investment and conservation. Property rights specify who may use a resource, exclude others, receive its income, and transfer it. When rights are secure, an owner who improves an asset is more likely to receive the future benefit, encouraging maintenance and investment. Transferability can move a resource toward a user who values […]
