Encyclopedia of Law and Economics

This chapter addresses the history, use and significance of the term transaction costs. Few words in the economic language have been more abused or fought over and this is shown to result from the emergence of two distinct definitions and uses. The Neoclassical definition rests on the costs of trading across a market, while the property rights definition centers on the costs of establishing and enforcing property rights. In articulating these two separate definitions and in demonstrating their relationship and separate uses, it is hoped that more progress can be made in the field of transaction cost economics.