FORGING LINKS BETwEEN REGIONS 67
agreement), social costs (external costs to society arising from a particular
transaction), and psychic costs (a subset of social costs that specifically repre-
sents the costs of added stress or losses to quality of life brought about by a
particular transaction).
As a general rule, trade undertaken in markets that have low associatedtransaction costs tends to be more profitable. Consequently, in market econ-
omies, profitability is largely dependent on the cost of transactions – that is,
the ex-ante and ex-post costs to individuals of making potentially profitable
contracts or bargains.^3 The theory underpinning transaction cost economics
dictates that if the cost of doing business is low, then the number of transac-
tions increases, thus benefiting society as a whole.^4 Therefore, if transaction
costs are high, fewer exchanges occur, thereby diminishing the wider socie-
tal benefits. As Ober recognizes with regard to Athens, all other things being
equal, foreign traders were likely to conduct business where transaction costs
were relatively low, an economic reality recognized by Xenophon (Vect. 2.1;
2.2; 3.3–5).^5 Consequently, one of the primary objectives of Athenian trade
policy during the fifth and fourth centuries BCE was to develop institutional
frameworks that would help lower transaction costs and thereby encourage
the expansion of markets. In general, these policies can be broadly divided into
two categories: those that were non-targeted (i.e., they lowered the transaction
costs of every merchant trading in Athens irrespective of ethnicity, social status,
or the commodities in which they dealt) and targeted (i.e., those designed to
lower the transaction costs of specific merchants or mercantile groups such as
grain traders).
When discussing the emergence of Athenian commercial institutions –especially those introduced during the fourth century – previous scholarship
has generally adopted Finley’s model, which holds that the state was solely
motivated by the need to import vital commodities (i.e., grain and timber).^6
Although recognizing that such policies were intended to increase the attrac-
tiveness of Athens as a place to conduct business, many modern scholars have
not appreciated the impact these policies had on expanding markets. This crit-
icism holds particularly true when the subject of discussion is the use of hon-
ors and privileges as a way of institutionalizing the relationship between state
and commercial agent. Believing that Athens profited more from this relation-
ship^7 (since the state’s monetary outlay was minimal compared to the value of
the services being provided by its benefactors), scholars have concluded that
the main purpose of bestowing honors on merchants was simply to secure
vital supplies. Lambert, for instance, proposes that it is only after the Battle
of Chaeronea that it is possible to identify the systematic honoring of grain
traders, something that he considers to be a new policy.^8 Engen, following
Lambert’s lead, suggests that the primary goals of Athenian trade policy were
to secure foodstuffs and, on rare occasions, to acquire timber supplies.^9 Both