Bad for practice: a critique of the transaction cost theory

Article Abstract:

Transaction cost economics (TCE), and more specifically the version of TCE that has been developed by Oliver Williamson (1975, 1985, 1993b), has become an increasingly important anchor for the analysis of a wide range of strategic and organizational issues of considerable importance to firms. As argued by some of its key proponents, the theory aims not only to explain but also to influence practice (Masten, 1993). In this article, we argue that prescriptions drawn from this theory are likely to be not only wrong but also dangerous for corporate managers because of the assumptions and logic on which it is grounded. Organizations are not mere substitutes for structuring efficient transactions when markets fail; they possess unique advantages for governing certain kinds of economic activities through a logic that is very different from that of a market. TCE is "bad for practice" because it fails to recognize this difference. We identify some of the sources of the "organizational advantage" and argue for the need to build a very different theory, more attuned to the realities of what Simon (1991) has called our "organizational economy." (Reprinted by permission of the publisher.)

Models, Competition (Economics), Economic aspects, Economics, Business enterprises, Cost (Economics), Costs (Economics)

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Social capital, intellectual capital, and the organizational advantage

Article Abstract:

Scholars of the theory of the firm have begun to emphasize the sources and conditions of what has been described as "the organizational advantage," rather than focus on the causes and consequences of market failure. Typically, researchers see such organizational advantage as accruing from the particular capabilities organizations have for creating and sharing knowledge. In this article we seek to contribute to this body of work by developing the following arguments: (1) social capital facilitates the creation of new intellectual capital; (2) organizations, as institutional settings, are conducive to the development of high levels of social capital; and (3) it is because of their more dense social capital that firms, within certain limits, have an advantage over markets in creating and sharing intellectual capital. We present a model that incorporates this overall argument in the form of a series of hypothesized relationships between different dimensions of social capital and the main mechanisms and processes necessary for the creation of intellectual capital. (Reprinted by permission of the publisher.)

Infrastructure (Economics), Intellectual property, Human capital

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Markets, firms, and the process of economic development

Article Abstract:

Organizations, wishing to become successful in a market economy, must be adequately enable and motivate new innovations in management. Failure to do so may entail a destruction of the organization's own economic structure. Analysts believe that the value-creation and value-realization potentials of autonomous agents of atomistic autonomous agents can be limited by engagement in reciprocally viable bilateral exchanges. As a result, organizations tend to counterbalance institutional constraints imposed on markets.

Management, Economic development, Organizational change, Business economics, Managerial economics, Industrial management

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