Which of the following is a dimension of Transaction Cost Theory?

• A. Asset Specificity
• B. Frequency
• C. Uncertainty
• D. Regulation

Answer: (C)

Transaction Cost Theory looks at how and why firms choose governance structures to minimize the costs of exchanging goods and services. It identifies asset specificity, the frequency of transactions, and uncertainty about future conditions as the key factors that shape transaction costs. Uncertainty captures how unpredictable future states are and the difficulty of drafting enforceable contracts when those states can’t be foreseen. When uncertainty is high, the costs of safeguarding transactions and the risk of opportunism rise, pushing toward governance arrangements that reduce these risks. Regulation isn’t regarded as one of the core dimensions that determine transaction costs. So, uncertainty is the dimension highlighted here.