This theory is associated with neo-classical economists and helps elaborate the Utilitarian approach to IP.  The economist in this league include people like Professor …   The major argument is that states should focus on creating property rights and enforcing copyrights.  The government should not bother too much about who is poor or rich but should bother about property rights and contracts as this would help allocate resources in the most efficient manner.  

What are transaction costs:
The cost of identifying the parties.  
There are costs incurred in transacting when one is negotiating
A poacher’s fee –
There are transaction costs associated with enforcement and this is costly.  Some quarters are arguing about efficient breach – contracts are an issue of economic efficiency.  Richard Posner has argued that there are costs as transaction costs

1.            That the cost of enforcement include the cost incurred by courts and police in preventing infringement or addressing piracy;
2.            Cost of restricting a good property when it has a public goods character. 
These are just some of the transaction costs.
Over the years transaction costs have been criticised by assuming that they can be zero or minimise.  The idea is to fight to reduce transaction costs.  The transaction cost theory is powerful and professors such as Godwin.  These scholars have argued that the exception or limitation to copyright such as criticism or review and private use are based on transaction use theory, that it is costly to monitor the use of intellectual property in private area, for example would it be possible for a lecturer to call Daily Nation every time they wanted to quote from an article that was on that day’s newspaper?  It would be practically impossible. 
Prof Goldstein in Copyrights highway has argued that transaction costs are being reduced by the internet.  There was a time that it would take a long time for one to get a book or a piece of music.  The internet facilitates a quicker way of getting these items especially music, books and software.

Transaction costs involved other issues, opportunity costs, money etc.


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