The Mechanisms of Governance

Transaction cost economics, which studies the governance of contractual relations, is the branch of the "New Institutional Economics" with which Oliver Williamson is especially associated. Transaction cost economics takes issue with "the theory of the firm", one of the fundamental building blocks in [...]
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Transaction cost economics, which studies the governance of contractual relations, is the branch of the "New Institutional Economics" with which Oliver Williamson is especially associated. Transaction cost economics takes issue with "the theory of the firm", one of the fundamental building blocks in microeconomics. Whereas orthodox economics describes the firm in technological terms, as a production function, transaction cost economics describes the firm in organizational terms, as a governance structure. Alternative feasible forms of organization - firms, markets, hybrids, bureaux - are examined comparatively. The analytical action resides in the details of transactions and the mechanisms of governance. Transaction cost economics has had a pervasive influence on current economic thought about how and why institutions function as they do, and it has become a practical framework for research in organizations by representatives of a variety of disciplines.