The role of transaction costs in the effectiveness of formal institutions and the players involved

Abstract

According to rational action theory, economic choices presumed to be free, rational and motivated by personal interest. The rational agent is assumed to take account of available information, probabilities, risk, but also potential costs and benefits of any exchange. However, the functioning of the market basically uncertain over the long-term ends up in distorting economic agents' expectations and rationality, creating opportunism and imposing them transaction costs.