The economic perspective: demand and supply in the reduction of transaction costs in the ancient world

In this chapter, I distill some elements of the demand and supply of institutions designed to reduce transaction costs in the ancient world. I some cases, contractual parties could reduce transaction cost by accurately designing contracts. In other cases, the failure of private coordination placed the state in a better position than private parties in reducing transaction costs. I emphasize two such (by no means exclusive) contexts: cases in which the gains from reducing transaction costs were spread among large numbers of transactions and cases in which contracts have effects for third parties. Identifying a demand for state intervention raises the question whether the state supplied the appropriate institutions. The state supply of institutions to reduce transaction costs in the ancient world varied. A political-economy perspective suggests that differences depend on the extent to which the state internalizes the gains generated from such institutions.