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 10: Transaction management and the implementation of government policy

Frank A.G. den Butter


This chapter argues that the government should also utilize transaction management to reduce the implementation costs of laws and regulations. This relates to transaction management in the relationship between the government and business sector (G2B relationship), which can be seen as a principal/agent relationship. In accordance with the Dutch polder model of compromising on policy issues, it is good to consult with all stakeholders to obtain support for the law and regulations. This reduces implementation costs because this public support enhances the intrinsic motivation to comply with the rules. By way of an example, the prospects for a more customer-oriented and trust-based handling of customs formalities (that is, the Authorized Economic Operator (AEO) certification) are reviewed. Here, the emphasis is on trust and reputation effects in the cooperation between customs and the participating firms. The previous chapter discussed the relationship between government intervention and transaction management from the perspective of government’s role in enhancing social welfare. Arguments from the theory of public sector economics indicate in what way government should interfere, for instance, in relationships between businesses (B2B relationships) in the case of externalities. However, the implementation of government regulation to internalize such externalities, as well as regulation with respect to tax collection or the provision of public goods, will bring about costs both for the government itself and for the private sector. The implementation costs of government regulation can be regarded as transaction costs of a sort (as was also discussed in Section 9.6 with respect to various strategies in innovation policy).

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