ABSTRACT
This chapter examines transaction costs in theory and in practice by the substance of the claims. It starts by considering the ways in which economists have analysed transaction costs. The chapter discusses the ways in which transaction costs have been measured in practice in primary care. In the old style new institutional economics (NHS), a 'command and control' management hierarchy decided what services were needed and how they should be delivered. The internal market reforms of the 1990s decentralised decision making by introducing a division between purchasers and providers of services. In this system the concept of transaction costs - that is, the costs of buying and selling services - became important. The chapter focuses the strong relevance for deciding upon how health services should be organised and for making judgements about the reforms contained in the current NHS Plan. Finally, ways of organising NHS activity that can be expected to minimise transaction costs in the future are discussed.
