On Being Misled by Transaction Cost Economics: Externalities, Commons, Anti-commons, and Gridlocks

53 Ariz. L. Rev. 1 (2011). Harold Demsetz, Professor Emeritus, UCLA Department of Economics.

During the last half-century transaction cost became a prominent consideration in discussions about externalities and ownership arrangements. The author of this essay contributed to this development in the earlier part of this half-century but has since come to doubt the importance of transaction cost and even the roles it is thought to play in these two areas of economic thought. A succinct statement of this doubt as it pertains to the externality problem is a primary task of this essay. The last part of the essay questions the dominant position given to transaction cost in discussions of ownership forms that now go by the names of commons, anti-commons, and gridlocks.