Transactions costs – if they were completely eliminated, we would have pure Coasian bargaining – no searching, just pure interaction. This sounds rather utopian, but it isn’t unrealistic to think we could get closer to what is called the “true demand curve”. Technological advances have reduced transaction costs significantly.


The way I view it, markets need to equilibrate in order for political and economic satisfaction to be ‘maximized’ in a world of scarce resources. But transaction costs are present in nearly every market. The model I sketched out above shows where a market is supposed to equilibrate (A).

The bright red line – sometimes called the “true demand curve” – shows that the existence of transaction costs reduces the overall amount of action [demand, quantity supply, bargaining, etc.] And anyway, it’s more apt to say the first (logically first) demand curve is the “true demand” in a world where transaction costs do not exist.

But because the cost of, say, greater government accountability is so high, we settle for the lower quantity of government accountability. Because underdeveloped countries face higher transaction costs with everything, they are underrepresented in intergovernmental bodies. Because the cost of action [bargaining, suing, exchanging] against tortfeasors and rights violators is so high, the appropriate level of “justice” does not occur either. These transaction costs apply to nearly every market, and this hampers political and economic satisfaction overall.

At any rate, this view of mine that technology can reduce transaction costs significantly enough to bring about more direct and more deliberate democracy is maybe another stupid idealism. Call it futuristic agorism if you like. But who knows, maybe that’s what Ronald Coase had in mind despite his ‘utilitarianism of rights’ (Nozick’s phrase.)