The Functions of Transaction Costs: Rethinking Transaction Cost Minimization in a World of Friction

This Article critically examines the goal of minimizing transaction costs, including the costs of legal decision-making. This goal has profoundly influenced legal scholarship and both public and private law. We argue that transaction costs purchase corollary benefits. They frequently enable those engaging in transactions to obtain information needed to correct for information asymmetries or inadequate information. They perform the functions of facilitating efficient transactions, allowing the avoidance of bad transactions, and serving important equitable goals. It follows that lawmakers must take transaction cost functions into account when deciding whether eliminating them is desirable. We discuss how to identify transaction cost functions and how to take these functions into account in choosing legal rules.