Economic Calculation and the Organization of Markets

Abstract

This paper contributes to the transaction cost literature and to Austrian institutional analysis by trying to reconcile the property right approach to transaction costs developed by Cheung, Barzel and Allen and the work of Ludwig von Mises and Hayek on economic calculation. We argue that the two approaches would gain from each other. In a world without transaction cost, there would be no calculation problem. Only when transaction costs are positive will the scope of economic calculation be limited. It follows that when transaction costs are positive, the capacity to use economic calculation works as a constraint on the organization of markets.