Magnitude Of Transaction Costs Research Articles

Dissecting the project anatomy: Understanding the cost of managing construction projects

The total cost of a construction project involves both the cost of production and the transaction costs associated with managing the project. However, we know surprisingly little about the magnitude of transaction costs in construction projects. The purpose of this paper is to provide more empirical data as we study what proportion of the total cost in construction projects is spent on managing the project. We use the analogy of human anatomy as we investigate the size of a project’s head (managing the project) compared to the size of its body (producing deliverables). Using a dataset from 134 construction projects in Norway, we find that the project head consists of more than 18% of the total project cost on average. We also investigate how the size of the project head varies depending on a project’s complexity, size, duration and burn rate.

Comparative Review of the Magnitude of Transaction Costs in Construction Procurement Projects between Developed and Developing Countries

Contracting business in public sector within various counties has a transaction cost to incur. This paper reviews transaction costs magnitude of developed and developing countries using standard sampling and procedure by analyzing data from four (4) developed countries; United States of America, United Kingdom, Newzealand, and Czech Republic and two (2) developing countries in Africa; Ghana and Nigeria. According to thefindings Newzealand have the highest TCs magnitude among all countries compared of about 16.5% averagely and with Czech Republic with 0.13% minimum that are incurred by stakeholders when bidding public sector construction projects. This is an important comparison and strengthens the assumption that there is a significant link between transaction costs incurred in bidding and public sector procurement, and that reducing such costs must be important for the contracting firms of various countries. 
 Keywords: Construction, Comparison, Magnitude, Procurement, Transaction Cost.

SINGULAR PERTURBATION EXPANSION FOR UTILITY MAXIMIZATION WITH ORDER-𝜖 QUADRATIC TRANSACTION COSTS

We present an expansion for portfolio optimization in the presence of small, instantaneous, quadratic transaction costs. Specifically, the magnitude of transaction costs has a coefficient that is of the order [Formula: see text] small, which leads to the optimization problem having an asymptotically-singular Hamilton–Jacobi–Bellman equation whose solution can be expanded in powers of [Formula: see text]. In this paper, we derive explicit formulae for the first two terms of this expansion. Analysis and simulation are provided to show the behavior of this approximating solution.

Estimates of Transaction Costs in Transfer of Development Rights Programs

Problem, research strategy, and findings: Local jurisdictions in 36 states have implemented transfer of development rights (TDR) programs to provide a market-based approach to preserving farmlands and open space while redirecting future development to targeted areas. Participation in TDR programs involves transaction costs over and above paying for TDR credits. Planners know little about the magnitude of transaction costs; who, if anyone, incurs a disproportionate share of these costs; or how transaction costs affect TDR participation. In this study we estimate the magnitude and distribution of transaction costs incurred by participants in 4 countywide TDR programs in Maryland, a TDR pioneer, by interviewing multiple participants in these programs. We fi nd that total transaction costs were high and borne largely by private sector participants, although we exclude the initial public sector costs of establishing the programs. Total transaction costs range from 13% to 21% of total TDR costs per transaction. Our findings are based on data reported by participants and may not be scalable; transaction costs, however, might deter landowners from participating in TDR programs, thus thwarting the land use goals of planners.Takeaway for practice: Planners should work to reduce transaction costs by better constructing TDR programs and providing greater information on TDR sale prices and potential buyers and sellers. Lowering and more fairly distributing transaction costs will make the TDR program a more successful approach to achieving land use goals and addressing the externalities arising from land use markets.

Singular Perturbation Expansion for Utility Maximization with Order-- Linear Price Impact

We present an expansion for portfolio optimization in the presence of small, instantaneous, quadratic transaction costs. Specifically, the magnitude of transaction costs has a coefficient that is of the order $\epsilon$ small, which leads to the optimization problem having an asymptotically-singular Hamilton-Jacobi-Bellman equation whose solution can be expanded in powers of $\sqrt\epsilon$. In this paper we derive explicit formulae for the first two terms of this expansion. Analysis and simulation are provided to show the behavior of this approximating solution.

Transaction-related issues and construction project performance

Transaction cost economics deals with costs incurred at the pre-contract phase such as the costs of conducting market research, exploring financial opportunities, conducting a feasibility study, organizing a bidding/negotiation and managing design; and with costs incurred in the post-contract phase such as the costs of administering the contract, administering change orders and claims, resolving disputes and managing incentives. Many researchers have investigated the factors that affect project performance over the years, but neglected to consider transaction-related issues. The effects of transaction-related issues on project performance are investigated in this study. Project performance is measured on the basis of completion within budget and on schedule, compliance with quality standards, and satisfaction of the owner. Transaction-related issues include the magnitude of transaction costs, the uncertainty in the transaction environment, and the owner’s and the contractor’s roles in the transaction. Hypotheses are tested by using a structural equation model using data collected from a survey administered to construction owners. The findings indicate that project performance can be stronger if the uncertainty in the transaction environment is minimized, transaction costs are kept low, and owners and contractors are sensitive to transaction-related issues.

Intra-Daily Variations in Volatility and Transaction Costs in the Credit Default Swap Market

This paper analyzes the interdealer-broker market for single-name Credit Default Swaps (CDSs) using a novel dataset from the GFI trading platform. We find that CDSs exhibit reverse J-shaped patterns for trading and quoting activity in the U.S., and U-shaped patterns in Europe and Japan. We also find that CDSs trade on average 3 times a day, which is comparable to corporate bonds. To deal with the scarcity of trading data and the absence of best limits, we estimate a state-space model of bid and ask quotes to infer the dynamics of volatility and transaction costs. The estimation uses new techniques based on particle filtering and the Monte Carlo EM algorithm. Empirical results indicate that the volatility of the efficient CDS spread is highest at the beginning of the trading day and declines subsequently. In addition, transaction costs exhibit a reverse J-shaped pattern across all CDSs. Finally, we find a strong association between the heterogeneity in dealers' private costs and the magnitude of transaction costs.

INTERNATIONAL COOPERATION REVISITED: TRANSACTION COSTS, THE SWISS CONFEDERATION OF 1815, AND BEYOND

This study makes use of a political economy/rational choice framework to shed light on the nature of cooperative security arrangements in the international environment. It argues that states choose among security arrangements with varying degrees of structural commitment and that two factors are crucial in explaining the degree of institutionalization elected—the level of threat in the international system and the magnitude of transaction costs. Since there is no common metric, like price, to ascertain the degree of transaction costs that allies are confronted with, the study relies on three proxy measures: uncertainty, heterogeneity, and asset specificity. Focusing on Swiss security provisions at the end of the Napoleonic Wars and drawing on the findings of two security arrangements examined in a larger study—the German Confederation of 1815 and the founding of NATO—the analysis shows that, when exposed to serious external threat and high transaction costs, states give rise to sophisticated, binding security structures. To demonstrate the broad applicability of the transaction costs framework, the concluding section sketches recent integrative moves within the European Union.

Options under Proportional Transaction Costs: An Algorithmic Approach to Pricing and Hedging

The paper is devoted to optimal superreplication of options under proportional transaction costs on the underlying asset. General pricing and hedging algorithms are developed. This extends previous work by many authors, which has been focused on the binomial tree model and options with specific payoffs such as calls or puts, often under certain bounds on the magnitude of transaction costs. All such restrictions are hereby removed. The results apply to European options with arbitrary payoffs in the general discrete market model with arbitrary proportional transaction costs. Numerical examples are presented to illustrate the results and their relationships to the earlier work on pricing options under transaction costs.

Strategic Management of R&D Pipelines with Cospecialized Investments and Technology Markets

The theoretical literature on managing R&D pipelines is largely based on real option theory making decisions about undertaking, continuing, or terminating projects. The theory typically assumes that each project or causally related set of projects is independent. However, casual observation suggests that firms expend much effort on managing and balancing their R&D pipelines, where managing appears to be related to the choice of R&D selection thresholds, project risk, and whether to buy or sell projects to fill the pipeline. Not only do these policies appear to differ across firms, they also appear to vary over time for the same firm. Changes in management policies suggest that the choice of R&D selection thresholds is a time-varying strategic decision and there may be some type of vertical interdependency among R&D projects in different stages. In this paper we develop a model using dynamic-programming techniques that explain why firms vary in their R&D project-management policies. The novelty and value of our model derives from the central insight that some firms invest in downstream cospecialized activities that would incur substantial adjustment costs if R&D efforts are unsuccessful whereas other firms have no such investment. If transaction costs in technology markets are positive, which implies that accessing the market for projects is costly, these investments lead to state-contingent project-selection rules that create a dynamic and vertical interdependency among R&D activities and product mix. We describe how choices of R&D selection thresholds, preferences over project risk, and use of technology markets for the buying and selling of projects differ by the state of the firm’s pipeline, the magnitude of transaction costs in the adjustment market, and the magnitude of technology costs. These results yield interesting managerial and public policy implications.

American Options Under Proportional Transaction Costs: Seller's Price Algorithm, Hedging Strategy and Optimal Stopping

American options are priced and hedged in a general discrete market in the presence of arbitrary proportional transaction costs inherent in trading the underlying asset, modelled as bid-ask spreads. Pricing, hedging and optimal stopping algorithms are established for a short position (seller's position) in an American option with an arbitrary payoff settled by physical delivery. The seller's price representation as the expectation of the stopped payoff under an approximate martingale measure is also considered. The algorithms cover and extend the various special cases considered in the literature to-date. Any specific restrictions that were imposed on the form of the payoff, the magnitude of transaction costs or the discrete market model itself are relaxed. The pricing algorithm under transaction costs can be viewed as a natural generalisation of the iterative Snell envelope construction.

European Options under Proportional Transaction Costs: An Algorithmic Approach to Pricing and Hedging

The paper is devoted to optimal superreplication of European options in the discrete setting under proportional transaction costs on the underlying asset. In particular, general pricing and hedging algorithms are developed. This extends previous work by many authors, which has been focused on the binomial tree model and options with specific payoffs such as calls or puts, often under certain bounds on the magnitude of transaction costs. All such restrictions are hereby removed. The results apply to options with arbitrary payoffs in the general discrete market model with arbitrary proportional transaction costs. Numerical examples are presented to illustrate the results and their relationships to the earlier work on pricing options under transaction costs.

Transaction Costs of Pesticide Policies in Vietnam

ABSTRACT Vietnam faces a number of important environmental and resource issues, including deforestation, loss of biodiversity, and water and air pollution. In developing countries the conflict between growth and protecting the environment is particularly acute. This article provides an overview of existing agri-environmental policies and institutions in Vietnam. It then analyzes policy instruments that have been employed to reduce pesticide pollution and discusses the factors affecting the magnitude of transaction costs associated with those policies. A major factor is the large number of enterprises involved, both farms and input suppliers.

Bidding for Incomplete Contracts

When procurement contracts are incomplete, they are frequently changed after the contract is awarded to the lowest bidder. This results in a final cost that differs from the initial price, and may involve significant transaction costs due to renegotiation. We propose a stylized model of bidding for incomplete contracts and apply it to data from highway repair contracts. We estimate the magnitude of transaction costs and their impact using both reduced form and fully structural models. Our results suggest that transactions costs are a significant and important determinant of observed bids, and that bidders strategically respond to contractual incompleteness. Our findings point at disadvantages of the traditional bidding process that are a consequence of transaction costs from contract adaptations.