A Synthesis Method for Analysing Party Formation by Transaction Cost Economics



Transaction Cost Economics (Williamson, 1985) is a theory of the firm in New Institutional Economics that has been applied for analysing economic transaction; especially, make-or-buy decisions or vertical mergers in firms. The contribution of this paper is applying this theory for a political issue that is party formation. Transaction Cost Economics links the party formation to the transaction costs of politicians in different governance structures. So, two types of governance structures for political activities were considered: partisan and individual structures. Then, the factors affecting the cost of a politician in both structures were studied in three groups: the attributes of political transactions (asset specificity, uncertainty and frequency), formal institutions, and informal institutions. The historical evidences are collected about parties in the United States and Turkey show that political institutions in these countries increased politician's costs in individual structure, and they have no choice besides acting in a party structure. But the evidence of political groups in Iran shows that costs of politicians in the party structure is higher than the individual structure. So in Iran, a party which could manage the government has not been formed yet.
JEL Classification: D23, P16, D71, L31, L25