A relevant notion of efficiency must refer to scarcity and people as they are, not as they could be. - Harold Demsetz

Modern analysis has yet to describe inefficiency in a world where indivisibilities are present and knowledge is costly to produce.

The legal substructure is private; the use of payments to influence the behavior of others is neither prohibited nor frowned upon. But the ' frictions" that perfect decentralization assumes away, must be lived with in laissez-faire.

Business firms, in which controlled cooperation takes place, are the first important implication of costly transactions. The laissez-faire filtering process, using the profit test, selects some of these business organizations for survival and rejects others.