The research programme draws heavily on recent developments in transaction cost economics and on the analysis of trade costs. The traditional neoclassical theory typically neglects the presence of transaction costs. This (oftentimes implicit) reliance on frictionless trade is surprising for theories in which exchange is at the heart of the matter. For instance, today's international trade flows, especially with respect to trade in services, can hardly be explained by traditional Ricardian models of international economics, which make trade flows dependent on comparative advantages in factor endowments. It is not so much comparative advantages in production factors, but more so in skills and performing tasks which determine today's trade relationships.
The entrance hall at Schiphol airport is full of signs indicating where to go: icons reduce transaction costs for those who do not understand English.
Heterogeneity with respect to productivity in product development, management of production, supply chain management, purchase and sales, is a major source of comparative advantages, which drives trade flows. The hypothesis of the programme is that the Netherlands and similarly other trading nations have a comparative advantage in the management of transactions, as they are mainly innovative in the design and implementation of technologies which reduce transaction costs. From that perspective the programme aims to investigate the relevance of transaction costs for understanding several of the empirical phenomena that are impossible to understand without relying on such costs. The programme centres around four areas of research in which transaction costs are dominant, namely (i) industrial organization with a focus on the determinants of the boundaries of the firm; (ii) international trade with a focus on the multiple dimensions of transaction costs distinguishing between transport costs, institutional costs and cultural costs of exchange; (iii) foreign direct investments with a focus on outsourcing and the organization of the firm in a globalizing world; and (iv) networks with a focus on the role of social and regional networks, and on standards as institutionalized settings that facilitate the exchange of goods, ideas, etc.
Knowledge on value creation through transactions in the era of globalization