According to Nobel Laureate Edmund Phelps (2013, p. 123), Mises’s critique of economic calculation under socialism renders him the originator of the economic analysis of property rights. In their new paper, NOUS member Peter Boettke, Rosolino Candela, and Peter Jacobsen paper also suggest that implicit to Mises’s impossibility theorem was also the origins of the theory of transaction costs. This raises the following question: what is the relationship, if any, between the process of economic calculation and the concept of transaction costs? Filtered through a Misesian lens, they argue that transaction costs are the costs of engaging in economic calculation. They illustrate their theoretical point utilizing the case of airline oversales auction system first proposed by Julian Simon (1968). In doing so, they reframe the problem of airline oversales from a transaction-cost approach, one in which property rights in airline seats are initially poorly defined. By doing so, they illustrate that resources expended to discover the valuable attributes of a good (in this case airline seats), the terms of exchange between potential trading partners, as well as enforcing the terms of an exchange, all of which are transaction costs, are also, by definition, the costs of calculating the exchange value of goods. Thus, the airlines oversales auction system is illustrative of an institutional solution to the problem of economic calculation via a reduction of transaction costs.
The full paper is available here.