Would it be fair to say that "costs of transactions" are in some part due to government bureacracy and taxing?
And could it be, that certain structures are less optimal (profitable) for the single "firm", but more optimal for the economy as awhole. Could there even be a distinction?
Would it be fair to say that "costs of transactions" are in some part due to government bureacracy and taxing?
Some costs of transactions are due to the need to document compliance with government regulations. The existence of regulations with compliance burdens will tend to make firms bigger than they would otherwise be, but many and probably most transaction costs aren't due to government, and there would be many additional sorts of transactions costs if there weren't a government at all.
And could it be, that certain structures are less optimal (profitable) for the single "firm", but more optimal for the economy as awhole. Could there even be a distinction?
It probably could, depending on what you mean by "optimal". Its pretty well established[1] that in the absence of transaction costs you can get a Pareto efficient[2] outcome, but Pareto efficiency is probably not the same thing you would call optimal (though what you'd call optimal is almost certainly Pareto efficient).
I would tend to expect that, given that we live in a world with transaction costs, firms are not the ideal size. But its hard to say whether firms ought to be bigger in general or smaller. Countries with relatively efficient economies (Germany) tend to have larger firms than countries with less efficient economies (Italy) but its really hard to tease out in those cases which way causality is flowing. Most countries tend to have laws that favor small businesses, and those might end up more than making up for their proportionally higher regulatory burden.
And could it be, that certain structures are less optimal (profitable) for the single "firm", but more optimal for the economy as awhole. Could there even be a distinction?
Sure. The extreme example is competition vs a monopoly. It is certainly more profitable for a single firm to be a monopoly and be able to set prices. It is always less optimal to have real competition, but it is always better for the economy as a whole.
Taken to the extreme of course, the economy might be best if perfect competition ruled everywhere, which would mean largely a nation of small businesses, artisans, and shopkeepers. But this would be bad for Microsoft, as it would likely mean networks of open source developers controlling the software market.
Yes. When members of a firm create value for each other, they don't pay sales tax. It is huge unfair advantage for large firms.
There is also the huge savings where teams have an executive authority to settle disputes and prevent them from trying to rip each other off with unfair contracts and nonpaid bills.
> Yes. When members of a firm create value for each other, they don't pay sales tax. It is huge unfair advantage for large firms.
This is very, very close to the sales pitch of a VAT. In a proper VAT system, there is effectively no difference between purchasing an intermediary good or service or producing it yourself.
In the US services aren't taxed. Most internal value created is in the form of services (e.g., IT). Most companies don't have their own internal computer production facility, for instance.
Your second point makes sense. There are usually much lower coordination costs for internal agreements.
in the US, I pay sales tax to the people who do repair work on my house and who fix my dad's computer, and for the software I get from Apple engineers, all of which are not taxed within a firm.
I have always interpreted http://apps.leg.wa.gov/wac/default.aspx?cite=458-20-155 regarding computer repair as the idea that if I am replacing a piece of faulty hardware that I must charge sales tax for the attached service, but if I am merely cleaning off viruses, that this is a professional service and therefore not subject to sales tax. I have not been able to find a clear authority for this however, and it isn't clear as to whether hooking up and configuring an external modem that the customer bought from someone else is taxable.
Repair however is a problematic term. A lawyer might be involved in sending a letter threatening action of a problem is not repaired but that service is not taxable itself.
In Washington State, professional services not directly tied to an improvement of tangible property are not generally taxable. So landsacping and lawn care is generally taxable, but open source software development is not (since it is not a sale of a license, or a one-of-a-kind development aimed at one customer only).
And could it be, that certain structures are less optimal (profitable) for the single "firm", but more optimal for the economy as awhole. Could there even be a distinction?