Theories Of Transaction Cost Economics

2.3.4.1 Organizations
Organizations are entities that include political bodies (e.g. political parties, parliament, city council, regulatory agency), economic bodies (e.g. firms, trade unions, family farms, cooperatives), social bodies (e.g. NGOs, churches, club) and educational bodies (e.g. schools, colleges, vocational training centers). They are groups of individuals bound by some common goal (Douglass North 1990).
2.3.4.2 Institutions
Institutions are assumed to condition human behavior and organize the synergy between actors or stakeholders within a particular social or geographical unit (Hatzius 1997). Representing constraints and options at the same time, they structure political, economic and social interactions and costs (Woerdman 2004; Douglas North 1992; Douglass North 1990). Institutions are composed of formal constrains (e.g. statute law, common law, regulations), informal rules (e.g.

Ronald Coase (1960) in his article “The problem of social cost” indicated that the Pigovian logic linking market failure with Pareto inefficiency is contradictory. He observed that the theory considered that all transactions in all markets are without costs. Coase mentioned that all transactions in the market involve transaction costs. He also mentioned that markets do not only trade goods but trade property rights in connection to those goods (O. Cacho, Graham, and Milne 2003; Allen 1999). According to Matthews cited by Cacho (2003), transaction costs are the costs “of arranging a contract to exchange property rights ex ante and monitoring and enforcing the contract ex post, as opposed to production costs, which are the costs of executing a contract”. In case of PES schemes, transaction costs are associated with costs of drawing attention to potential buyers, costs of working with project partners and costs of ensuring parties meet their obligations (Rojas and Berger 2012; Bracer et al.