Negitive Economic Friction
Definition: The reduction of flow in economic activity based on extraneous transaction costs.
Extraneous transaction cost is any expense beyond direct functional overhead.
Complete elimination of economic friction is unfeasible and, in some cases, harmful due to positive social benefit of some economic friction resulting from positive externalities.
The optimal level of economic friction in any given economic activity is the level at which system-wide maximum aggregate social benefit is attained. It is very difficult to determine optimal equilibrium based on the near-limitless number of interactions between factors in an open system and the lack of ability to directly quantify social benefit.
Quantification can be attempted using hedonic regression. However, the methodology involved is indirect and imprecise.
The superlative methodology for determining the viability of a transaction cost is comprehensive externality analysis combined with symmetrical information dissemination and direct democracy. Ironically, this methodology creates economic friction.
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~ by prfx on August 3, 2008.
Posted in Economics, PRFX
Tags: business overhead, economic friction, Economics, public finance, regulation, social sustainability, socio-economic, transaction cost
