A Sociological Study of Transaction Cost and Its Impact on Entrepreneur's Economic Activity: The Case of the Entrepreneurs in Hamadan Province

A transaction cost is a cost that has no role in the process of production but is accounted for in the final price of the product; though it should not be so. This paper seeks to analyze the relationship between social costs of transaction and unproductive economic activity. New institutional theories and, especially, Douglass North’s theory constitute the theoretical framework of the study. Institutions are formal and informal laws and rules of the game in any society which reduce uncertainty in transactions. This study has been conducted among a research population consisted of entrepreneurs in Hamadan Province (n=370). The research sample was selected using mixed method sampling, including stratified and simple random methods. The structural equation model was analyzed using AMOS software. The value of absolute fit index (normed chi-square) equaled CMIN/DF=4.71, which proved acceptable along with other model indices. The standardized coefficient reveals that, once other variables are assumed to be fixed, the components of transaction costs exert an impact on productive/unproductive entrepreneurship as large as 0.49. The findings indicate that entrepreneurs tend to withdraw from productive entrepreneurship and embark on unproductive entrepreneurship because they underestimate the indices addressed in the present study. Another important outcome of the research is the significant relationship between a sense of security, social capital, generic trust, interpersonal trust, social participation, collaboration, particularism, stable laws and circulars, government intervention in the economy, good performance of contracts and rights with unproductive entrepreneurship. The Coefficient of Determination of the model suggests that the model variables could account for 30% of the unproductive entrepreneurship variance.