This paper explores ethical activity within a transaction cost (TC) framework. It discusses the theoretical and practical links between TC economisation and ethical and trust-based behaviour. By engendering a climate of trust at the micro/firm level, ethical behaviour can reduce TCs associated with monitoring and protection against broken contracts. At the macro/societal level, considerations such as stakeholders’ increasing ethical expectations, may also have TC implications. To distinguish these latter TCs from those at the more micro level, the paper terms them social transaction costs (STCs). While it might be possible to internalise TCs to achieve economisation, STCs cannot be reduced through internalisation.
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