Endogenous Transaction Costs and Division of Labor

　　The paper develops a general equilibrium model with alternation offer bargaining and endogenous specialization to investigate interplays between network effects of division of labor and endogenous transaction costs caused by strategic interactions. It shows that endogenous transaction costs may have advere effects on the development of division of labor and therefore welfare. The endogenous transaction cost may be eliminated in a super game where players care about their reputation.