The Journey from the Industrial Revolution to the Digital World: Evolution of Transaction Cost Economics

Abstract

Around eighty-five years ago, the concept of transaction cost was introduced by Coase, and in the early 1980s, transaction cost theory became a part of the new institutional economics research due to the incorporation of cognitive psychology into decision-making. The reach of the digital revolution creates new forms of economic organisation that urge the widening of the boundaries of transaction cost theory. Therefore, this review aims to explore the contextual evolution of the concept of transaction cost from the Industrial Revolution to the Digital World. In addition, this review highlights how the relevant theories emerged and developed in response to the changes around us. Therefore, this review will assist scholars and economic actors in understanding the importance of the theory of transaction costs and suggest applying it in economic endeavours to suit the digital economy for success while meeting the challenges. Further, the review highlights the need for further research to cope with the challenges encountered in digital economic landscaping.

Keywords

• digital world
• industrial revolution
• opportunism
• transaction cost economics