39/ Transaction cost theory study the cost of economic links and the ways in which people organize to deal with commercial interactions.
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40/ When the external transactions become less costly than the internal transactions, firms stop growing since it is better for them to buy things from the market than to produce these internally: the cheaper the link, the larger the network.
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41/ Williamson’s classifies the links (ie transactions) in two axes: by frequency (recurrent and occasional) and specificity (nonspecific to idiosyncratic).
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42/ Buying coffee is a nonspecific recurrent transaction. Purchasing a home is an occasional and specific interaction. It is easy to understand the difference in term of paperwork and people needed to establish a commercial link.
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43/ During the last decades the cost of market transactions has fallen due to for examples transportation costs but a as well as emergence of standards.
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44/ Language is the quintessential standard. While still linguistically fragmented, language allows people to weave networks by empowering them with the ability to communicate complex ideas and coordinate their actions.
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45/ While those costs decrease, a network of firms is developing, increasing our ability to accumulate knowledge in networks of markets interactions.
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46/ Nevertheless, links requiring large amount of paperwork and people’s time can be a bureaucratic burden and very costly.
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47/ Extreme levels of inefficiency can only be supported by organizations whose revenue stream does not depend on their interactions with others. In a government, most of the personbytes available are consumed by internal procedures.
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48/ Bureaucratic transactions costs (detailed contracts, insurance …) can be significantly reduced with trust. Trust makes links cheaper, allowing networks to grow larger. Trusts is the large networks’ glue.
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Thibaut Retweeted Thibaut
That’s why blockchains can be so disruptive. All the trusted intermediaries will become obsolete.https://twitter.com/Kpaxs/status/947517131385688064 …
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