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Friction Costs

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Friction costs
Costs, both implied and direct, associated with a transaction. Such costs include time, effort, money, and associated tax effects of gathering information and making a transaction.

Friction Costs
The total cost, both direct and indirect, of a transaction after commissions, interest rates, taxes, research, time, and other expenses. For example, a student loan has a principal and interest rate, but the friction cost may include an origination fee, a federal default fee, and other expenses.


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One might argue, for example, that friction costs are higher in a firm with unskilled, low-wage workers, as it would seem that an unskilled lettuce picker is more likely to be mistreated by a supervisor (thus creating friction) than a skilled
 
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