This point becomes clear when we recognize that private owners may choose to leave goods in the commons. Demsetz gives the example of a parking lot adjacent to a shopping area. (124) It would be possible to propertize the parking spots and charge a fee for their use; indeed, this happens all the time in urban areas. This approach requires fewer parking spaces (because people overconsume a zero-priced commodity) and thus lower costs to create parking lots. But it would also mean higher transaction costs because people have to pay each time they park. As Demsetz explains, "[W]hile we have reduced the resources committed to constructing parking spaces, we have increased resources devoted to market exchange. We may end up by allocating more resources to the provision and control of parking than had we allowed free parking because of the resources needed to conduct transactions." (125) In short, creating and enforcing shortterm property interests in the individual spaces may not be worth it. (126) In a case like this one, the inputs into the foregone transactions (an entry control gate, a gatekeeper, and so on) are readily available through competitive markets, and the costs of these inputs could be directly imposed on those who would benefit from the arrangement. Transactions are not being produced in this example because it is not efficient to produce them. They are not being inefficiently undersupplied. The same point holds when we move outside the property envelope of a single owner. (127)
Even if we feel quite certain that a given kind of transaction is being underproduced, a subsidy may not be helpful. We need to know why it is being underproduced. A subsidy might work quite well to ease interactions between willing buyers and sellers (paying them for the time it takes to meet, for instance), but not at all well to address their desire to extract disproportionate surplus from a deal. As Cooter has noted, reducing certain kinds of transaction costs can actually have a pernicious effect where strategic holdout behavior is at issue. (128) The cheaper it is to transact, the lower the opportunity cost of wrangling over surplus, and hence the more of it we are likely to see.
3. Streamlining.--If subsidies seem like an often unhelpful approach to the problem of high transaction costs, we might turn our attention to more broad-based measures and expenditures that make market coordination less expensive. Consider government investments in transportation and communication infrastructure, the public education system, the legal system, and the currency system. Property rights comprise an especially interesting and important category of such transaction cost lowering technologies. By creating a tradable commodity--a property entitlement--the cost of coordinating over a transaction is diminished. Within the broad category of property rights lie a number of specific "transactability features," from land registries to standardization protocols to antifragmentation doctrines. All of these things help reduce coordination costs.
In each instance, we would want to make sure that the returns to these investments are worth the cost--that is, capable of facilitating transactions that will generate more surplus than was expended in the process. We do have reason to suspect that the private market would undersupply many of the things that globally reduce transaction costs, to the extent those things take the form of public goods or goods with large network effects or spillovers. But streamlining costs something, and the fact that the charges are dispersed across the population should, if anything, make us more vigilant in comparing what we are getting with what we are giving up. (129)
Not all streamlining takes the form of advances in infrastructure or institutions. It might instead involve simply rolling back the formal requirements associated with transactions. Coase mentions one example: easing the requirements for completing a contract. …