Additional Transaction Costs Research Articles

Supply chain decisions and coordination in the presence of an imperfect spot market

This study considers a supply chain consisting of a commodity supplier and a final product manufacturer with uncertain demand. In addition to purchasing from the supplier through a forward contract, the manufacturer can adjust their inventory by trading the commodity in an online spot market after observing the actual demand. However, the spot market is imperfect in that transactions cannot be certainly realized and come with additional transaction costs. Furthermore, the spot price is volatile such that overly relying on the spot market is unwise. To investigate how the spot market affects the decisions and coordination in a supply chain, we develop a game-theoretical model incorporating spot trading. We derive the optimal ordering decision in a centralized supply chain, as well as the supplier's and manufacturer's equilibrium pricing and ordering decisions in a decentralized supply chain. The impact of the imperfect spot market on the optimal decisions and profits is analyzed. This study also demonstrates how the supply chain can be coordinated in the presence of an imperfect spot market. Finally, a numerical analysis is performed to examine the analytical results. Our results indicate that the spot market can generally improve the performance of the centralized supply chain and benefit the manufacturer in the decentralized one. However, it can be detrimental to the supplier. The supply chain can be coordinated by a revenue-sharing contract, and both parties' profits can be improved. Our findings suggest that the manufacturer could take advantage of the spot market, and the supplier should attempt to integrate or coordinate the supply chain to share the benefits of spot trading.

Emergence of Islamic Finance Organizations, 1948 – 2016

In this paper, I show two mechanisms of the emergence of non-Western organizations: demonstration of contracts and cultural resurgence. For illustration, I use the case of Islamic finance, an alternative economic organization for Muslims who are about 24% of the world population. With additional transaction costs and illegitimacy concerns, Islamic finance contracts do not usually take a formal form. However, my analyses with duration models, regressions, and semi- natural experiments over 1948 - 2016 and in 186 countries suggest that the Islamic finance contracts between national and supranational authorities inspired confidence among entrepreneurs and stakeholders that Islamic finance is socially and economically appropriate. This gave rise to Islamic finance organizations to enact such contracts, reducing the transaction costs for realizing Islamic principles in financial transactions. Also, Islamic finance organizations grew earlier in countries with aspirations for Muslim cultural resurgence in the post British colonial times.

Smart contracts vs incomplete contracts: A transaction cost economics viewpoint

Smart contracts (i.e., agreements enforced by a blockchain) are supposed to work at lower transaction costs than traditional (and incomplete) contracts that instead exploit a costly legal enforcement. This paper challenges that claim. I argue that because of the need for adaptation to mutable and unpredictable occurrences (a chief challenge of transaction cost economics à la Oliver Williamson), smart contracts may incur higher transaction costs than traditional contracts. This paper focuses on two problems related to the adaptation: first, smart contracts are constructed to limit and potentially avoid any ex-post legal intervention, including efficiency-enhancing adaptation by courts. Second, the consensus mechanism on which every smart contract depends may lead to additional transaction costs due to a majority-driven adaptation of the blockchain that follows Mancur Olson's Logic of groups. The paper further proposes several institutional expedients that may reduce these transaction costs of smart contracts.

Trade-offs Between the Value of Ecosystem Services and Connectivity Among Protected Areas in the Upper Chattahoochee Watershed.

The Upper Chattahoochee Watershed supplies most of the drinking water to the Atlanta Metropolitan Area, a region with one of the fastest urban growth rates in the United States. Smart conservation planning is necessary to conciliate urban development and the provision of critical ecosystem services (ESs) such as water quality, carbon storage, and wildlife habitat. We employed optimization models to compare the value of the ESs provided by alternative allocations of land parcels for conservation. We adopted boundary penalties to determine the trade-offs of choosing higher connectivity among parcels regarding economic values provided by carbon storage, wildlife habitat, and water quality. We used InVEST models to quantify and map ESs and value transfer to assign economic values to them. We set low and high ESs economic value bounds and discounted their values to perpetuity using 3% and 7% discount rates. Our results indicate that incorporating boundary penalties results in solutions with larger, fewer, and more connected parcels but yields lower economic benefits than unconstrained models. However, these differences are relatively small (between 2.6% and 7.3% loss in economic value). Additional transaction costs of purchasing more parcels and improving ecological networks provided by larger forest patches might justify the selection of solutions with higher connectivity. Decision-makers can use the developed models for estimating the economic cost of selecting connected parcels for conservation purposes at the landscape level.

Фактори формування демонстраційних формальних правил у сфері охорони навколишнього середовища

The article is aimed at identifying the factors contributing to the formation of demonstration formal rules and further determining their impact on the dynamics of the efficiency of the current institutional framework. It is shown that the main reason for the formation of demonstration formal rules is the desire on the part of political forces to get additional votes in elections. At that, both opposition political forces and those in power can resort to the practice of adopting demonstrative formal rules. Factors contributing to the adoption of demonstration formal rules are the following: the lack of influence of interested groups, the high level of public concern, and the low level of transaction costs associated with the adoption of appropriate demonstration formal rules. It is identified that the main shortcomings of demonstration formal rules are their low efficiency, which, in the case of the spread of the practice of manipulating public sentiments, is accompanied by significant reverse asymmetry, and the danger of creating an illusion of solving the relevant problem in society. As a result, there is a threat of conservation and inefficient existing institutional frameworks in the long term. It is proved that as demonstrative formal rules can be adopted only those formal rules that do not contradict the moral and ethical views of most of society, that do not create excessive additional transaction costs of bureaucratic procedures for most consumers, and do not contradict the interests of any group concerned. As result, demonstration formal rules can be characterized solely by targeted inefficiency. It is shown that the only measure to prevent the emergence of demonstration formal rules is to increase the general education of the population, which should not only limit the manipulation of public sentiments around problems governed by demonstrative formal rules, but also allow society a sensible valuation of both the level of threat of certain problems and the efficiency of the proposed formal rules.

Динаміка демонстраційних формальних правил у сфері охорони здоров’я

The purpose of this publication is to define the reasons for the inefficiency of the current demonstration formal rules governing healthcare activities and the reasons for the sustainability of the relevant formal rules. It is shown that the main reasons for the negative dynamics of the efficiency of formal rules in the healthcare sphere are the following: pressure on the part of individual interested groups, manipulation of public sentiments, and the spread of ineffective demonstration formal rules in the above named sphere. Unlike the demonstration formal rules observed in other areas of economic and public life, demonstration formal rules in the healthcare sphere are characterized not only by targeted, but also by significant transaction inefficiency. It is proved that numerous demonstration formal rules can not only reduce the efficiency of the medical system and slow down the pace of institutional reforms in the healthcare sphere, but also create conditions that pose a direct threat to human life and health. It is shown that, despite the symmetry of the costs associated with changing demonstration formal healthcare sphere regulations, the relevant demonstration formal rules can be preserved for a long time. The dynamics of ineffective demonstration formal rules in the healthcare sphere is determined by the lack of a request from society for further institutional reforms in the healthcare sphere. The latter is due to the low level of general education of the population, which does not allow society to assess the targeted and transaction inefficiency of demonstration formal rules, also to a small level of additional transaction costs of bureaucratic procedures of each individual demonstration formal rule. Measures to prevent the spread of ineffective demonstration formal rules in the healthcare sphere are proposed

What Impact of Social Networks on Farmers' Performances. Case of The Milk Sector in Ghardaïa, Algeria.

In many developing countries, farmers are struggling to improve their productivity and economic performance. This is due to the markets' imperfections, including information market. Numerous empirical studies point to the limitations of the so-called conventional information system set up by public institutions, which forces farmers to bear significant additional transaction costs to access information. These limits have led to the emergence of other modes of information transfer, of which collaboration seems to be the most successful. Social networks, by their very conception, have allowed this mode to materialise and develop rapidly. Algeria is no exception, since these techniques are found in some of the country's agricultural contexts. By analyzing the dairy value chain in the wilaya of Ghardaïa (South of the country), we evaluate in this study the impact of the use of social networks on farmers' performance. We surveyed 50 farmers in the region, randomly selected using the snowball method – one respondent leads to another. The results highlight the relevance of information obtained from social networks, which allows farmers to make savings (13,000 DZD per year per dairy cow: production and transaction costs) and technical changes, and thus leads to a significant improvement in productivity and economic performance (net profit per year per dairy cow: 170,000 DZD versus 78,000 DZD, net profit per litre of milk: 20 DZD versus 11 DZD respectively). The study shows, however, that the use of social networks is not generalized and remains subject to structural variables specific to farmers such as age and level of education.

Blockchain Based Bidding System

The E-auction, one of the most common e-commerce events, allows bidders to bid directly on the Internet. As with the sealed deal, additional transaction costs are needed with intermediaries, as the third party plays an essential role between buyers and sellers in helping to negotiate both during the auction. In fact, it never confirms that a third party is trustworthy. To solve the problems, we propose the low transaction cost blockchain technology which is used to build the public bid and sealed bid smart contract. The smart contract consists of the Auctioneer address, the start time for the auction, the deadline, the current winner's address, and the current highest price. The project demonstrates the bidding framework with blockchain technology. This bidding application prepared by using Advanced Encryption Standard(AES) Algorithm. This algorithm contains AES cipher specifiers the number of repetitions of transformation rounds, that converts the input called the plain text, then into the final output called cipher text.

Comparative studies into public private partnership and traditional investment approaches on the high-speed rail project linking 3 airports in Thailand

At present, PPP (Public-Private Partnership) plays an important role in infrastructure project development. This is attributable to the fact that many governments around the world have a budget constraint and may try to prioritize their budget for other developments in need. Allowing a private sector to participate in investment is an important step towards the cost-saving for a government. The private sector has an advantageous opportunity in the investment partnership, and public users tend to have superior service. Thai government envisages potential advantages of PPP and adopts this practice in various projects. However, the new mega project linking 3 airports is one of the first highspeed rail projects in Thailand of which the Thai government has insufficient experience. There are serious concerns whether the PPP adoption could enable a viable option. Therefore, this study aims to analyze benefits and risks of PPP adoption in the High-Speed Rail Project Linking 3 Airports in Thailand. Lifecycle assessment has been carried out by breaking down the project into various phases. Field data have been gathered from different sources such as an official website, feasibility study reports, annual reports of related government agencies, and opinions from technical experts in private sector. Financial analysis is used to analyze and calculate related financial values. The results reveal that the PPP adoption in this project yields different benefits and risks depending on each phase of the project. Adopting PPP can overcome key limitations and provide some real benefits that the traditional approach cannot. Simultaneously, there are risks incurred from the PPP adoption due to the complexity in PPP partnership such additional transaction costs and interrelation complexity. However, the risks can be managed by a rigorous plan and practice. Both governmental and private sectors need to collaborate to ascertain the project's success.

Information Acquisition and Secondary Market Liquidity

We develop a structural model to quantify the effects of informational and noninformational frictions on bond market liquidity. We decompose the liquidity component of the yield spread into two parts: one caused by information asymmetry between current and new bond investors, and the other caused by noninformational frictions that generate additional transaction costs. Our calibrated model matches the observed turnover ratios across different rating classes. We find that information asymmetry accounts for 0.59% to 1.86% of the yield spread for investment-grade bonds and 3.46% to 11.20% for high-yield bonds. Liquidity injection may hurt market liquidity by inducing more informed trading.

Nash Equilibrium for Risk-Averse Investors in a Market Impact Game with Transient Price Impact

We consider a market impact game for [Formula: see text] risk-averse agents that are competing in a market model with linear transient price impact and additional transaction costs. For both finite and infinite time horizons, the agents aim to minimize a mean-variance functional of their costs or to maximize the expected exponential utility of their revenues. We give explicit representations for corresponding Nash equilibria and prove uniqueness in the case of mean-variance optimization. A qualitative analysis of these Nash equilibria is conducted by means of numerical analysis.

АНАЛИЗ ВОЗДЕЙСТВИЯ ИНСТИТУЦИОНАЛЬНЫХ ТРАНСФОРМАЦИЙ НА ИНСТИТУЦИОНАЛЬНУЮ СРЕДУ И СОЦИАЛЬНО-ЭКОНОМИЧЕСКОЕ РАЗВИТИЕ РЕГИОНА

Цель: в статье исследуются особенности взаимодействия институциональных трансформаций на институциональную среду и социально- экономическое развитие региона на примере Республики Крым. Обсуждение: если один регион переходит из одной институциональной среды в другую, и более того, становится частью другого государства, возникает ряд проблем, которые можно описать с помощью методологического аппарата институциональной экономической теории – необходимость подстройки существующей институциональной среды под новые условия и требования, характерные для нового состояния, достаточно резкое изменение институциональной среды приводит к дополнительным трансакционным затратам, которые могут привести к дефициту имеющихся финансовых ресурсов и формированию бюджетных дисбалансов, что проявилось и в Республике Крым. Побочным процессом институциональных трансформаций являются многочисленные запреты, санкции и ограничения, связанные либо с непризнанием независимости Республики Крым и последующего включением ее в состав Российской Федерации, либо с введением санкций против конкретных физических и юридических лиц, осуществляющих свою деятельность, в том числе и на территории республики. Результаты: проведена классификация санкций в отношении Республики Крым. Определено влияние санкционных ограничений на трансформационные процессы. Выявлены такие виды трансформаций, как полная и частичная, на уровне государства или региона.

An Alternative Market Framework for Water Transfers When Third Party Externalities Dominate

Economic studies have argued that transaction costs and third-party impact of water transfers can reduce the potential of water markets in allocating water efficiently across users. The main objective of this study is to design and empirically simulate a market structure, which can overcome the transaction costs and some of the third-party externalities in surface water trading. An important characteristic of this market is trading conducted within a centralized framework by a market manager. Once the bidding rounds are closed, the market manager formulates the market model as a linear programming problem to find the market equilibrium for the bids submitted. The market manager then determines net trades on the basis of each participant’s initial permit allocation. Empirical simulations of the above market design demonstrate that the marginal cost price paid by each participant internalizes the third party impacts of water transfers. Prices are recalculated based upon binding flow constraints in each round of trade and hence additional transaction costs are avoided.

Transaction costs in environmental purchasing: analysis through two case studies

Environmental purchasing has been one of its most significant elements in Green Supply Chain Management (GSCM). By implementing environmental purchasing, companies adopt additional criteria for evaluating suppliers, which, as argued, gen­erates additional transaction costs. From the GSCM theoretical basis, and looking through the analytical lenses of Transaction Cost Economics (TCE), this article aims to discuss the transaction costs involved in the supplier selection process with the environmental purchasing approach. As result, this article presents five propositions of TCE within the GSCM in the light of two cases, which relate the possible transac­tion costs involved in each stage of the environmental purchasing process and also according to the main transaction elements.

Additional Transaction Costs to the Economy and the Population of the Kaliningrad Region of Russia

С точки зрения организации государственного управления до недавнего времени одной из наиболее сложных федеральных территорий являлась Калининградская область, отделенная от остальной части России границами новых государств, в том числе стран членов ЕС и НАТО, и международными водами. В мировой практике к таким территориям применяются особые режимы управления и механизмы поддержки. Для выбора инструментария и объема государственной поддержки важно знать, что и в каком размере должны компенсировать эти меры. Авторы с позиций институциональной экономической теории рассмотрели условия возникновения и механизмы формирования дополнительных трансакционных издержек, что характерно для экономики Калининградской области, предложили классификацию, оценили размеры этих издержек, уровень их влияния на макроэкономические показатели Калининградской области. Общий объем дополнительных трансакционных издержек экономики и населения области составляет не менее 23,3 млрд руб. в год. Причем основная нагрузка падает не на население области, а на хозяйствующие субъекты из реального сектора региональной экономики. При разработке нормативных актов, регулирующих деятельность в условиях Калининградской области, в обязательном порядке необходимо учитывать фактор объективности дополнительных трансакционных издержек, характерных для условий Калининградской области, соответственно выстраивая как компенсационные механизмы, так и меры поддержки населения и отдельных секторов экономики области. Результаты исследования могут использоваться при разработке мер государственной региональной политики и быть полезны для ученых и практиков, занимающихся проблемами жизнеобеспечения и развития отдельных российских территорий.

High-Frequency Limit of Nash Equilibria in a Market Impact Game with Transient Price Impact

We study the high-frequency limits of strategies and costs in a Nash equilibrium for two agents that are competing to minimize liquidation costs in a discrete-time market impact model with exponentially decaying price impact and quadratic transaction costs of size $\theta\ge0$. We show that, for $\theta=0$, equilibrium strategies and costs will oscillate indefinitely between two accumulation points. For $\theta>0$, however, strategies, costs, and total transaction costs will converge towards limits that are independent of $\theta$. We then show that the limiting strategies form a Nash equilibrium for a continuous-time version of the model with $\theta$ equal to a certain critical value $\theta^*>0$, and that the corresponding expected costs coincide with the high-frequency limits of the discrete-time equilibrium costs. For $\theta\neq\theta^*$, however, continuous-time Nash equilibria will typically not exist. Our results permit us to give mathematically rigorous proofs of numerical observations made in Schied and Zhang (2013). In particular, we provide a range of model parameters for which the limiting expected costs of both agents are decreasing functions of $\theta$. That is, for sufficiently high trading speed, raising additional transaction costs can reduce the expected costs of all agents.

Public Borrowing for Private Organizations: Costs and Structure of Tax‐Exempt Debt Through Conduit Issuers

Conduits are public organizations that issue debt on behalf of third‐party borrowers, both government and private. Additional transaction costs from using conduits offset lower interest costs. We find debt issuance costs 25 percent higher for private organizations than the broader municipal debt market, primarily from fees charged by conduits. Further, existing issuance cost reporting focuses on upfront costs, which fail to capture the significance of annual conduit fees. Also, private borrowers have debt structures that keep more principal outstanding over longer periods of time. Despite additional costs, conduits still provide these private borrowers with substantial interest cost savings.

Timing Equity Quant Positions with Short-Horizon Alphas

Many managers of long-horizon quantitative stock selection portfolios do not use short-horizon alpha signals because of the fast decay of these signals. The author demonstrates a simple tactical trade timing strategy that allows a long-horizon manager to take advantage of short-horizon alphas without incurring additional transaction costs. He shows that the strategy’s value added is consistent across time and capitalization groups and does not affect the portfolio’s risk exposures.

Securities Transaction Tax and Market Quality – the Case of France

AbstractWe study the French Securities Transaction Tax implementation of 1 August 2012. Although a similar tax is planned to be introduced across 11 European countries, consequences for market quality are yet to be thoroughly assessed. We show that liquidity demand and supply significantly drop. Even though the French proposal exempts professional liquidity provision, we find increased spreads and a declined order book depth resulting in additional transaction costs for market participants besides the tax. As all venues trading French stocks are affected, we further find that STT threatens inter‐market information transmission by impairing price coordination among fragmented markets in Europe.

Tradable Pollution Permits with Offsets

This paper extends the existing theory of tradable emissions permit markets to allow for tradable permits and offsets. Offsets are currently incorporated into the EU ETS, and in the future similar assets will likely become a feature of many pollution control systems. A model is developed with multiple compliance assets, offset quotas, and different transaction costs across compliance assets. Either offset usage quotas or additional transaction costs associated with surrendering offsets can lead to an equilibrium price difference between permits and offsets, as experienced in the EU ETS. Another result of the paper shows that offset usage quotas alone cannot explain observed offset behavior in the EU ETS, but combining offset usage quotas with firm-level heterogeneity in transaction costs can be consistent with observed EU ETS behavior. Annual compliance data from Phase I and II of the EU ETS are used to support the consistency of the theory.