The Transaction Costs Latent Variable Model

Abstract

This chapter investigates whether the described theory of transaction costs can be identified on the basis of the empirical data obtained. It tests whether the theory can be adequately modelled by the two key variables that were derived from the theory, information costs and the suboptimal choice of law costs arising from provisions of the chosen contract law that fail to fully meet the requirements of the contracting parties in the given case (abbreviated in what follows as suboptimal choice of law costs). A latent variable model, a confirmatory factor analysis, is employed to investigate whether the concepts of information costs and suboptimal choice of law costs adequately describe the transaction costs involved in crossborder transactions. This question needs to be operationalised so that it can be investigated.