Hidden cost

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Definition

A hidden cost is a cost imposed by a transaction or activity that is not immediately apparent simply by looking at the trade occurring.

Types of hidden costs

Transaction costs

Further information: Transaction cost

These are the costs involved in making the transaction. They may include:

  • Search costs: Costs incurred by parties in trying to find each other.
  • Enforcement costs: Costs incurred by parties in ensuring that any agreement they make is enforced.
  • Taxes and other costs of complying with the law.

Opportunity costs

Further information: Opportunity cost

The opportunity cost of a resource is the net benefit that would have accrued from its second best use.

Costs of intangibles

Intangibles may include time, human experience, trust that parties have in each other, etc.

External costs

Further information: External cost

External costs are costs imposed on parties who are not involved in the transaction, and thus have no direct control over whether it occurs.

Psychic costs

Further information: Psychic cost

Psychic costs are costs imposed in the form of stress on the parties involved. When these costs are internal, they may be treated as transaction costs, and they can be factored in by the parties into their reservation prices if they can factor in the costs in advance. There may also be external psychic costs, which may be direct or indirect.