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Axiomatic Formulation of the Optimal Transaction Cost Theory in the Legal Process Through Cobb-Douglas Optimization

Author

Listed:
  • Bonsu Kwadwo Osei

    (Zhejiang Gongshang University, China)

Abstract
Subject and purpose of work: This paper uses Cobb-Douglas optimization to formulate an optimal transaction cost algorithm within the constraint of a generalized legal framework. Materials and methods: The author has adopted a Lagrangian approach to formulate the social utility function, then, from a set of legally allowed strategies established the Karush-Kuhn-Tucker conditions for the legal game so as to find the optimal parameters within the social utility function. Finally, the optimal transaction cost algorithm was developed. Results: The Bordered Hessian Matrix from the partial differentials of the social utility function showed that there is a particular parameter within the social utility function which describes the optimal transaction cost. An adjustment of this parameter is essential in mechanism design for legal games. Conclusions: The author has shown how transaction costs influence the set of strategies played by players in a legal game, and has described the essence of a social utility function and how it can be optimized.

Suggested Citation

  • Bonsu Kwadwo Osei, 2021. "Axiomatic Formulation of the Optimal Transaction Cost Theory in the Legal Process Through Cobb-Douglas Optimization," Economic and Regional Studies / Studia Ekonomiczne i Regionalne, Sciendo, vol. 14(3), pages 385-389, September.
    • Handle: RePEc:vrs:ecoreg:v:14:y:2021:i:3:p:385-389:n:9
    DOI: 10.2478/ers-2021-0027
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    References listed on IDEAS

    as
    1. McKelvey, Richard D. & Page, Talbot, 1999. "Taking the Coase Theorem Seriously," Economics and Philosophy, Cambridge University Press, vol. 15(2), pages 235-247, October.
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    3. Bylund, Per L., 2021. "The Firm versus the Market: Dehomogenizing the Transaction Cost Theories of Coase and Williamson," Strategic Management Review, now publishers, vol. 2(1), pages 79-118, February.
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