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Production costs include transformation and transaction costs. Transformation costs are expenses of physical production. Transaction costs include the costs of measuring physical properties and legal characteristics of goods exchanged, and the costs of assurance and implementation of contracts, which neoclassical economics ignores them. Transaction costs play important roles in the economic performance because the accumulation of knowledge, specialization, and division of labor and trade boom is an inverse function of the transaction costs per capita. Transaction costs are of different instances. In the Iranian business sector, business goodwill is the most important type of transaction costs. This study aims to estimate the cost of Goodwill of retail businesses in Kermanshah. This research makes use of institutional economics approach to estimate the cost of goodwill. Data are gathered from a sample of 50 retail units through interviews. The results indicate that total annual cost of goodwill of the retail units amounts to 3014 billion Rials in 2012. Each retail unit bears more than 15 million Rials as average monthly cost-of-goodwill. The value of goodwill capital of retail businesses is estimated about 45,679 billion Rials, equivalent to 53% of the total investments made in Kermanshah in 2012. The findings can be used to amend the capital structure and to increase the share of productive capital.

Keywords: Transaction Costs, Goodwill, Institutional Economics, Kermanshah, Iran Economy, Retail Business

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