Three Transaction Cost Economics Essays which Use Romanian Data
Paun, Radu Adrian
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The first chapter of this dissertation considers the complexity of contracts to be determined by transacting partners based on their exposure to the opportunistic behavior of the other. A transaction cost economics model generates the hypothesis that buyer and seller relationship-specific investments have opposite effects on the exposure to opportunism, hence on contract complexity. The precise direction of the effect is thought to depend on partners' relative vulnerability. The treatment-effects model estimated by maximum likelihood indicates that sellers' relationship-specific investments increase contract complexity, while buyers' investments reduce it. This is the first transaction cost economics analysis that simultaneously counters the problems of unobserved heterogeneity, generates estimates of the effects of relationship-specific investments that are opposite in sign on opposite sides of the agreement, and explains the patterns in the biases of ordinary least squares estimates. The quality of court services and the impact of buyers' prepayments are also investigated. The second chapter presents a simple methodology for measuring transaction costs at agreement level by using reports from business officials who supervise companies' buying and selling activities. In a practical implementation in Romania, those transaction costs directly related to the buying and selling activities are assessed as large, accounting for more than a fifth of value added. The recorded transaction costs estimates correlate significantly with variables suggested by theory, indicating validity. The quality of the data is also analyzed. The third chapter of the dissertation investigates the determinants of transaction costs by using the information collected by the survey question proposed in the second chapter. Given the limited nature of the data, the Tobit model is first employed. The sample selection model is then adopted. However, combined evidence indicates that a two-equation approach is more appropriate. Results show that the existing theory is somewhat successful at predicting the size of transaction costs and very successful at predicting the existence of these costs. The two-sided nature of the decision to invest in relationship-specific assets is discussed, and the potential endogeneity of several factors is investigated.