Advances in New Institutional Analysis series
Chapter 7: Standards
This chapter explains how standards can contribute to reducing transaction costs. Standards come in many forms, and the ways they affect the working of the economy are also different. This chapter provides a characterization and classification of the various types of standards, and discusses in what way they contribute to value creation in transaction management. This discussion is illustrated by means of a number of practical examples.1 In a globalizing world, with increased economic specialization and the fragmentation of production, coordination between different economic agents and countries with regard to international standards becomes ever more important. Standards are an effective means of reducing the transaction costs associated with trade. In that way they create value in trade transactions and contribute to international welfare. So far, this innovative role of standards in the reduction of transaction costs has remained somewhat undervalued in mainstream economic thinking. Yet it is a major tool in transaction management. This chapter discusses research into the successes and failures of the design of standards, and provides some guidelines on how to support the implementation of successful standards that create value and that, therefore, are profitable both for individual firms and for society as a whole. There are various types of standards, ranking from technical standards, rules and regulations, internal product and process standards of firms, external safety and quality standards, codes of conduct, accounting standards and standards for competencies.
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