Managing Transaction Costs in the Era of Globalization
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Managing Transaction Costs in the Era of Globalization

Frank A.G. den Butter

Frank A.G. den Butter explains the importance and means of keeping transaction costs as low as possible. He illustrates how this transaction management can contribute to making firms and nations more competitive by exploiting gains from the division of labour and international fragmentation of production, and uses relevant case studies to illustrate how value is created by reducing transaction costs. Policy recommendations for strengthening the competitive position of trading nations and reducing implementation costs of government policy are presented, and management methods for creating value in organizing production on a global scale are prescribed.
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Chapter 7: Standards

Frank A.G. den Butter


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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