Economic Organization and Transaction Costs

One important extension of the Coase Theorem states that, if all costs of transactions are zero, the use of resources will be similar, no matter how production and exchange activities are arranged. This implies that in the absence of transaction costs, alternative institutional or organizational arrangements would provide no basis for choice and hence could not be interpreted by economic theory. Not only would economic organization be randomly determined; there actually would not be any organization to speak of: production and exchange activities would simply be guided by the invisible hand of the market.