Transaction costs and technological development: the case of the Danish fruit and vegetable industry

Abstract

It is argued that technological change can be understood in terms of attempts to reduce transaction costs as well as production costs. Two types of paths of technological development are identified: a production cost minimizing path, and a transaction cost minimizing path. The creation of new technological opportunities underlying the path of production-cost-minimizing depends on the emergence of problems of optimizing the performance of products and processing technology. The exploitation of such opportunities may easily be interpreted within a production perspective since the economic consequences would be reduced production cost. The creation of new technological opportunities within the transaction-cost-minimizing path depends on the continual emergence of problems related to the control of variability in product quality or performance. The economic consequence from exploiting such opportunities, however, can only be interpreted in a transaction cost perspective, since the economic benefit is reduced cost of buying a product of a specific quality at a given price. In other words, an exchange (transaction cost) perspective on technological development is useful as a complementary perspective in addition to the conventional production perspective. The theoretical points are continuously illustrated by the case of technological development in the Danish fruit and vegetable industry.