How to Indirectly Measure Market Transaction Costs
Abstract: This paper proposes a procedure to indirectly measure the variable market transaction costs using threshold cointegration models to operationalize concepts of Institutional Economics. Among the advantages, the proposed procedure measures the exchange costs by means of widely applied cointegration models , decomposes those costs into transaction and transportation costs., requires only simple and generally available data, and its results are easy to interpret. Applying this procedure on the international market of ethanol, we found that the transaction costs incurred to export this biofuel from Brazil to United States range from US$ 0.55/gallon to US$ 0.63/gallon. The proposed procedure may be applied to different markets and it is potentially a useful tool for evaluating policies to increase market efficiency.
