A Transaction Cost Economics Explanation of Buyer-Seller Relationships

Abstract

Institutions as “the rules of the game” in a society influence human behavior. They structure our everyday life, even though we often behave unconsciously in accordance with them (Hayek 1945, 528; Hayek 1973, 43). They determine how we greet friends on the street, how we drive our cars, how we buy milk, etc. Institutions provide a framework within which individuals can interact (North 1990, 3–4). “They consist of both informal constraints (sanctions, taboos, customs, traditions, and codes of conduct), and formal rules (constitutions, laws, property rights).” (North 1991, 97). An important question is how institutions function and in which way they structure human behavior.¹