Without the state, its institutions, and supportive framework of property rights, high transaction costs will paralyze complex production systems, an… - Þráinn Eggertsson

In general terms, transactions costs are the costs that arise when individuals exchange ownership rights to economic assets and enforce their exclusive rights. A clear definition of transactions costs does not exist, but neither are the costs of production in the neoclassical model well defined.

North's (1979) theory of the state,... is based on the modern theory of the firm... and emphasizes how transaction costs and agency problems affect political behavior and the structure of property rights.

We begin by introducing what we refer to as the naive theory of property rights and its application in several areas. The naive theory looks at the emergence or nonemergence of exclusive rights in terms of the costs and benefits of exclusion and the cost of internal governance when individuals share property rights.