Cultural Background, Transaction Costs and Economic Institutions

Abstract

The main purpose of this chapter is to identify the extent to which cultural background affects transaction costs and economic institutions. The role of cultural background has preoccupied researchers in their efforts to explain the differences among the economic performances of various countries. The relationship between the results of those studies and developmental growth indices demonstrates that culture can be particularly valuable. In addition, the institutions of a society form the “rules of the game” (North, Institutions, institutional change and economic performance. Cambridge University Press, Cambridge, 1990) and affect the efficiency of the market. The reduction of transaction costs frees up resources. Existing literature supports the notion that cultural background can affect economic output via institutions; i.e., culture is directly linked to the formation of institutions. The establishment of distinguishable frameworks of action for economic actors can reduce transaction costs by offering incentives for undertaking entrepreneurial activities.