Book ChapterDOI
Hierarchies and Markets
Oliver E. Williamson
- pp 6690-6693
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Transact cost economics as mentioned in this paper is an alternative mode of governance with the main purpose of which is to economize on transaction costs, and it originates with path-breaking contributions by Karl Llewellyn (1931) on contract law; John R. Commons (1932) on the need to come to terms with the three conditions of conflict, mutuality and order; Ronald Coase (1937) on need to make provision for positive transaction costs; and Chester Barnard (1938), on the neglected importance of coordinated adaptation.Abstract:
Hierarchies and markets are herein described as alternative modes of governance, the main purpose of which is to economize on transaction costs. It originates with path-breaking contributions by Karl Llewellyn (1931) on contract law; John R. Commons (1932) on the need to come to terms with the three conditions of conflict, mutuality and order; Ronald Coase (1937) on the need to make provision for positive transaction costs; and Chester Barnard (1938) on the neglected importance of coordinated adaptation. These fundamental ideas were joined and operationalized in the 1970s as Transaction Cost Economics took shape and has been a work in progress since. Not only does a predictive theory emerge, but a large and growing empirical research literature that is broadly supportive has taken shape. Public policy ramifications proliferate.read more
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References
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TL;DR: In this article, the authors draw on recent progress in the theory of property rights, agency, and finance to develop a theory of ownership structure for the firm, which casts new light on and has implications for a variety of issues in the professional and popular literature.
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The Nature of the Firm
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Markets and Hierarchies: Analysis and Antitrust Implications.
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Transaction-Cost Economics: The Governance of Contractual Relations
TL;DR: For instance, the authors argues that if transaction costs are negligible, the organization of economic activity is irrelevant, since any advantages one mode of organization appears to hold over another will simply be eliminated by costless contracting.