Mohd Amar Aziz · Badariah Haji Din · Kamaruddin Abdulsomad ·Institutions and Economies ·2019 ·JEL: I3; O3; P4; Z1
This paper examines transaction costs inthe institutional zakat system from the open innovation perspective and tries to understand its impact on performance. It attempts to harmonise the concept of transaction costs with the open innovation strategy, especially in the aspect of zakat distribution. A quantitative approach was applied in measuring the performance of zakat distribution, where the data were based on the perspectives of zakat payers in Malaysia. Transaction costs were treated as the mediator, while the property right of zakat was the independent factor towards the performance of zakat. The result showed two critical aspects of the transaction costs, namely the asset specificity and the service measurability, performed positively as mediators in determining the performance of zakat distribution. Institutional arrangements through open innovation strategy are suggested to reduce the transaction costs in delivering the benefits of zakat to the righteous recipients. It can be executed practically by focusing on the asset specificity and service measurability through the open innovation strategy. By reducing transaction costs, the public will be able to understand that the zakat institution developed not only to provide charity to the poor and needy, but its capacity stretches beyond the physical values by nurturing the giving spirituality with love and enhances the values of the transaction.