Transaction cost entrepreneurship

Steven C. Michael

Research output: Contribution to journalArticlepeer-review


When offering a novel product, the entrepreneur desires the customer to choose to "buy" (from the entrepreneur) rather than to "make." Transaction cost economics provides guidance to firms considering a make-versus-buy decision. In this paper we extend transaction cost economics to examine the novel transactions proposed by the entrepreneur. Application of the theory identifies three crucial considerations for the transaction: the cost of quality measurement, the risk of overconfidence by the entrepreneur (here termed identity risk), and the required cost of necessary transaction specific assets. By extending transaction cost analysis to cover novel transactions across customers, entrepreneurship can be analyzed using established theories and measures to generate novel propositions.

Original languageEnglish (US)
Pages (from-to)412-426
Number of pages15
JournalJournal of Business Venturing
Issue number3
StatePublished - May 2007
Externally publishedYes


  • Entrepreneurship theory
  • Organization
  • Transaction costs

ASJC Scopus subject areas

  • Business and International Management
  • Management of Technology and Innovation

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