Just paste some related discussion to elaborate this point. It would be really nice if Professor Cheung can give some comments:
If you like you can rephrase the question as:
Is the cost of talking/playing tennis/fighting a transaction cost?
The point is that: not all activities involving two agents are transaction, but all these activities are not conceivable in an one man economy.
I don't mean to say that "transaction cost" is not a good concept. It is perfectly intuitive and useful. The problem is that Cheung's definition is very poor. As transaction cost has a central role in Cheung's analysis, it deserves a precise definition. And as I have argued, it is too vague to define it as "comprising all those costs that cannot be conceived to exist in a Robinson Crusoe".Certainly, we don't want to accept that the cost of chatting, playing tennis and fighting are transaction cost.
"the cost of chatting, playing tennis and fighting are transaction cost.有什麼問題？"
- In principle, no problem. I can define transaction cost as "any cost conceivable when you are alone in the toilet" No one can say that this is wrong/false.
- Whether this is a good definition is another matter. In this case, whether the things we commonly think of transaction cost coincides with what Cheung's definition refers to? I guess very few economists will agree that "the cost of chatting, playing tennis and fighting are transaction cost". One may ask, "if cost of playing tennis is a transaction cost, does it imply that playing tennis is a kind of transaction? Talking is transaction? Marriage is transaction? Should I charge my wife before I go to bed with her, professor?"
Of course, it's just a question of terminology, but as I have mentioned before, one of the problems of Cheung is that he loves to redefine terms in an idiocyncratic way and most people will disagree. It's just creating ambiguity, no?
(1) Under Cheung's definition, talking, fighting and playing tennis are all transactions.
(2) Definition is no right or wrong. But his definition is not a good one. May be even misleading.
What I want to point out is that
(1) I guess most economists will refuse to use a definition that consider "talking, fighting and playing tennis" as transactions. Not because it is wrong, but it is a poor definition in the sense that it leads to ambiguity. But the purpose of defining things is clarification, not creating confusion!!!
(2) I don't think it is a minor problem, because in Cheung's model, transaction cost is an important exogenous variable that leads to institutional change. Clarification of the term is essential for evaluating the model's predictive power.
(3) I raise this example to attack on Cheung's habit to create idiocyncratic definition. Not saying this is a logical flaw, but very misleading!
I don't have a good definition for institutional cost, too. (maybe the concept is just too vague to be precise) But if you ask me, I would prefer to define institutional cost as the additional cost incurred due to the presense of incentive compatability constraint. In an one man economy, we have no incentive problem, so no institutional cost. Also, when two people talk/fight with each other, we have no incentive problem, so no institutional cost as well.
