This book brings together in one place the work of one of our most respected economic theorists, on a field which he has played a large part in originating: the New Institutional Economics. 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 one of the fundamental building blocks in microeconomics: the theory of the firm. 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, bureaus--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. Through a transaction cost analysis, The Mechanisms of Governance shows how and why simple contracts give way to complex contracts and internal organization as the hazards of contracting build up. That complicates the study of economic organization, but a richer and more relevant theory of organization is the result. Many testable implications and lessons for public policy accrue to this framework. Applications of both kinds are numerous and growing. Written by one of the leading economic theorists of our time, The Mechanisms of Governance is sure to be an important work for years to come. It will be of interest to scholars and students of economics, organization, management, and law.

The Mechanisms of Governance

A Historical Comparison of Resource-Based Theory and Five Schools of Thought Within Industrial Organization Economics: Do We Have a New Theory of the Firm?

Business strategy is a complex subject and is usefully examined from several perspectives. This paper applies the lenses of governance and competence to the study of strategy. Both the governance and the competence perspectives have had the benefit of distinguished antecedents. They have also had to deal with tautological reputations. I begin with the governance perspective, with emphasis on the six key moves through which it has been operationalized. I then examine the competence perspective in these same six respects. Governance challenges the competence perspective to apply itself more assiduously to operationalization, including the need to choose and give definition to one or more units of analysis (of which the ‘routine’ is a promising candidate). The research challenges posed by competence to which governance can and should respond include dynamic transaction costs, learning, and the need to push beyond generic governance to address strategy issues faced by particular firms (with their distinctive strengths and disabilities). A lively research future for these two perspectives, individually and in combination, is projected.Copyright © 1999 John Wiley & Sons, Ltd. Business strategy is an expansive enterprise. Not only do all of the functional areas in the business school relate, but strategy is, by nature, interdisciplinary. All of the social sciences— especially economics and organization theory— plus contract law are implicated. Indeed, in the high technology arena where some of the most difficult strategy issues reside, engineering and the law on intellectual property rights also have a bearing. Of the various approaches to the study of strategy, this paper focuses on the governance and competence perspectives. Both perspectives combine economic reasoning with organization theory. As between these two, the governance

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Strategy research: governance and competence perspectives

This paper discusses the prevalence of Silicon Valley-style localizations of individual manufacturing industries in the United States Several models in which firms choose locations by throwing darts at a map are used to test whether the degree of localization is greater than would be expected to arise randomly and to motivate a new index of geographic concentration The proposed index controls for differences in the size distribution of plants and for differences in the size of the geographic areas for which data is available As a consequence, comparisons of the degree of geographic concentration across industries can be made with more confidence We reaffirm previous observations in finding that almost all industries are localized, although the degree of localization appears to be slight in about half of the industries in our sample We explore the nature of agglomerative forces in describing patterns of concentration, the geographic scope of localization, and the extent to which agglomerations involve plants in similar as opposed to identical industries

Geographic Concentration in U.S. Manufacturing Industries: A Dartboard Approach

I explore the connection between income inequality and health in both poor and rich countries. I discuss a range of mechanisms, including nonlinear income effects, credit restrictions, nutritional traps, public goods provision, and relative deprivation. I review the evidence on the effects of income inequality on the rate of decline of mortality over time, on geographical pattens of mortality, and on individual-level mortality. Much of the literature needs to be treated skeptically, if only because of the low quality of much of the data on income inequality. Although there are many puzzles that remain, I conclude that there is no direct link from income inequality to ill-health; individuals are no more likely to die if they live in more unequal places. The raw correlations that are sometimes found are likely the result of factors other than income inequality, some of which are intimately linked to broader notions of inequality and unfairness. That income inequality itself is not a health risk does not deny the importance for health of other inequalities, nor of the social environment. Whether income redistribution can improve population health does not depend on a direct effect of income inequality and remains an open question.

Health, Inequality, and Economic Development

Interest in health economics has soared over the past three decades, stimulated by intellectual innovations, greater availability of data, and, most importantly, a surge in health care spending from 6 to 14 percent of GDP.1 An eleven-fold increase2 in the number of Ph.D.s has enabled many professional schools, government agencies,3 and research institutes to add health economists to their staffs. Nevertheless, the health care debate of 1993–1994 benefited much less than it could have from the results of their research.…

Economics, values, and health care reform.

Policy issues and research opportunities in industrial organization

The distribution of employment among Agriculture, Industry, and Service within countries is closely related to the level of real Gross Domestic Product per capita. As real income rises, Agriculture's share falls, Service employment rises, and Industryâ€TMs share rises to a peak at about $3,300 (1970 dollars) per capita and then declines. U.S. time series and OECD cross-sections follow almost identical patterns of employment change. The decline of Agriculture is attributable primarily to differences in income elasticity of demand but the shift from Industry to Service is attributable primarily to differential rates of growth of output per worker. Economic growth also contributes to the rise of service employment through an increase in female labor force participation because families with working wives tend to spend a higher proportion of their income on services. Productivity tends to grow less rapidly in the Service sector than in the rest of the economy, but the shift of employment to Services was not a major factor in the slowing of aggregate productivity in the United States in the 1970's.

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Victor R. Fuchs

Papers

Economics, values, and health care reform.

Policy issues and research opportunities in industrial organization

Economic Growth and the Rise of Service Employment

Differentials in Hourly Earnings by Region and City Size, 1959

Production and Productivity in the Service Industries