Transaction Costs, Information Technology and Development

Singh, Nirvikar (2008): Transaction Costs, Information Technology and Development.

Abstract

This paper examines the impact of transaction costs on economic welfare and development. We extend the static model of Romer (1994), in which transaction costs reduce welfare by the reducing the equilibrium number of intermediate goods, and estimate the welfare losses in the case of domestic transaction costs. The main analysis of the paper extends a dynamic model of Ciccone and Matsuyama (1996) to incorporate transaction costs. We show that high transaction costs reduce the long-run level of development, and may arrest development completely in the extreme case. We also discuss the role of information technology in reducing transaction costs, and offer some preliminary evidence from rural India to illustrate how these reductions may occur through the use of such technologies.

• Item Type: MPRA Paper
• Language: English
• Keywords: transaction costs; information technology; Internet; development; India
• Subjects: P - Economic Systems > P2 - Socialist Systems and Transitional Economies; L - Industrial Organization > L3 - Nonprofit Organizations and Public Enterprise > L31 - Nonprofit Institutions ; NGOs ; Social Entrepreneurship; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O12 - Microeconomic Analyses of Economic Development

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