Sludge and Transaction Costs

Behavioural scientists have begun to research sludge, excessive frictions that make it harder for people to do what they want to do. Friction is also an important concept in transaction-cost economics. Nevertheless, sludge has been discussed without explicit referral to transaction costs. Several questions arise from this observation. Is the analogy to friction used differently in both literatures? If so, what are the key differences? If not, should we develop the concept of sludge when the well-established literature on transaction costs already exists? This paper shows that sludge and transaction costs are related, but distinct concepts, and that the literature on sludge can benefit from incorporating elements from transaction-cost research. For example, we suggest defining sludge as aspects of the choice architecture that lead to the experience of excessive or unjustified costs, organise sludges using a typology inspired by the transaction-cost literature and show that sludge audits can be conducted using methods developed in the transaction-cost literature.