Óliver Williamson

University of California, Berkeley | UCB · Economics and Graduate School of Business

Whereas neoclassical economics describes the firm as a production function (a technological construction) for which marginal analysis is used to derive efficient factor proportions, transaction cost economics describes the firm and market as alternative modes of 10.1057/978-1-137-00772-8_737 that differ in discrete structural ways. The latter is a...

Whereas neoclassical economics describes the firm as a production function (a technological construction) for which marginal analysis is used to derive efficient factor proportions, transaction cost economics describes the firm and market as alternative modes of governance that differ in discrete structural ways. The latter is a more microanalytic...

This essay outlines the contributions of Ronald Harry Coase (1910–2013) to institutional economics, noting his insistence on the importance of studying real world institutions and his personal contribution as an institution builder.

Although many economists decided on economics as a career choice when they were undergraduates, that was not my experience. I became an economist by discovering my interests as I progressively moved from engineering to business to economics and, within economics, finding that interdisciplinary economics (which, for me, would initially entail combin...

Gregory Dow's assessment of transaction cost economics is both thoughtful and provocative. Although we agree on many matters, these remarks focus on our differences. I begin with a brief sketch of the framework out of which transaction cost economics operates. I then examine the purported bias of transaction cost economics in favor of capital manag...

Scholarship at the intersection of transaction cost economics (TCE) and marketing has enjoyed an impressive record of growth over the past three decades, and the future promises more of the same. Following Erin Anderson’s perceptive uses of TCE in her 1982 dissertation, the field of marketing has made many constructive uses of and contributions to...

The much-heralded transformation of corporate governance by ‘intellectual currents in finance and economics and new transactional developments’ (Romano, 2005a, p. 359) notwithstanding, corporate governance controversies continue. This chapter uses the lens of contract/governance to examine the huge disparities between the theory of the board of dir...

This paper is an autobiographical recollection of how my interest in and work on transaction cost economics progressively developed. It begins with an overview of the transaction cost economics project. A sketch of my undergraduate and graduate education follows. Key events in the 1960s that set the stage for my 1971 paper on “The Vertical Integrat...

Special Issue of Journal of Retailing in Honor of The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2009 to Oliver E. Williamson

Oliver E. Williamson delivered his Prize Lecture on 8 December 2009 at Aula Magna, Stockholm University. He was introduced by Professor Bertil Holmlund, Chairman of the Economic Sciences Prize Committee. (This abstract was borrowed from another version of this item.)

I address the topic of pragmatic methodology as a practitioner in applied microeconomics who has been working in the still nascent field of the 'economics of organization'. My purpose is both to make explicit the methodology out of which transaction cost economics works and to suggest that other theories of economic organization do the same. Concei...

Inasmuch as "all theories, not just the neoclassical, start with the existence of firms" (Arrow 1999, vi), since the theory of the firm figures prominently in both Milton Friedman's essay on "The methodology of positive eco-nomics" (F53) and my own research agenda, and since we are all closet methodologists, I responded with alacrity to the invitat...

We analyze a rational-expectations model of price formation in an intermediate-good market. There is a continuum of dyads, each consisting of an upstream party and a downstream party. Both parties can make speci…c investments at private cost. As in property-rights models, di¤erent governance structures induce di¤erent invest-ments. As in rational-e...

We analyze a rational-expectations model of price formation in an intermediate-good market under uncertainty. There is a continuum of dyads, each consisting of an upstream party and a downstream party. Both parties can make speci…c invest-ments at private cost. As in property-rights models, di¤erent governance structures induce di¤erent investments...

This manuscript provides the Nobel laureate's reflections on transaction cost economics. The overview section frames governance as the overarching concept and transaction cost economics as the means by which to breathe operational content into governance and organization. The vertical integration section identifies efficiency factors associated wit...

Interview with the 2009 Laureates in Economic Sciences Elinor Ostrom and Oliver E. Williamson, 6 December 2009. The interviewer is Adam Smith, Editor-in-Chief of Nobelprize.org.

Numerous significant past and recent contributions to the literature on the efficacy of corporate boards of directors notwithstanding, a consensus has yet to develop. Partly this is due to a failure to agree on the ground rules, to which the use of different lenses through which to observe and interpret corporate boards is a contributing factor. Th...

"Theories commonly progress through four stages, from informal to pre-formal to semi-formal and fully formal. This paper reports on the earliest stage of transaction cost economics that extended from the 1920s to the 1970s. That the gestation stage lasted so long is partly because transaction cost economics departed significantly from the then-prev...

This article examines outsourcing from the transaction cost economics (TCE) perspective. The transaction is made the basic unit of analysis and the procurement decision, as between make and buy, is made (principally) with reference to a transaction cost economizing purpose. As sketched herein, the ease of contracting varies with the attributes of t...

This overview of transaction cost economics is organized around the “Carnegie Triple” – be disciplined; be interdisciplinary; have an active mind. The first of these urges those who would open up the black box of economic organization to do so in a modest, slow, molecular, definitive way, with the object of deriving refutable implications and submi...

This review shows that a combined law, economics, and organization theory approach leads to different and deeper understandings of the purposes served by complex contract and economic organization. The business firm for these purposes is described not in technological terms (as a production function) but in organizational terms (as an alternative m...

This paper traces the origins of transaction cost economics to three seminal people who had an intense interest in business: Ronald Coase, Chester Barnard, and Herbert Simon. By contrast with the neoclassical theory of the firm, which is a top-down construction, the transaction cost economics theory of the firm is a bottom-up construction--which is...

Transaction cost economics is an effort to better understand complex economic organization by selectively joining law, economics, and organization theory. As against neoclassical economics, which is predominantly concerned with price and output, relies extensively on marginal analysis, and describes the firm as a production function (which is a tec...

The lens of contract approach to the study of economic organization is partly complementary but also partly rival to the orthodox lens of choice. Specifically, whereas the latter focuses on simple market exchange, the lens of contract is predominantly concerned with the complex contracts. Among the major differences is that non-standard and unfamil...

This paper is written in the spirit of what Robert Solow has recently described as the “native informant ” approach to economic methodology (1997, 2001). It being his view that most economists are “natural-born, loose-fitting positivists ” (1997, p. 50), and given his lack of credentials in the philosophy of science, Solow describes economics “as i...

The authors, an ad-hocgroup of professionals with experience in regulatory and energy economics, share a common concern with the continuing turmoil facing the electricity industry ("the industry") in California. Most ofthe authorsendorsed the first California Electricity Manifesto issued on January 25, 2001. Almost two years have passed since that...

James Buchanan avers that “mutuality of advantage from voluntary exchange is…the most fundamental of all understandings in economics ” (2001, p. 29). He further contends that this fundamental understanding is better realized by examining economics through the lens of contract rather than the lens of choice (1975). Because the latter has been the re...

This paper describes the firm not as a production function (which is a black box construction) but as a governance structure (which is an organizational construction). This is accomplished by examining economic organization through the lens of contract rather than through the more traditional lens of choice. Firm and market are viewed in a comparat...

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; Rona...

Employees are motivated intrinsically as well as extrinsically. Intrinsic motivation is crucial when tacit knowledge in and between teams must be transferred. Organizational forms enable different kinds of motivation and have different capacities to generate and transfer tacit knowledge. Since knowledge generation and transfer are essential for a f...

It being the case that law and economics is a success story, what are the reasons to call upon organization? Three related reasons are advanced here. First, the orthodox theory of the firm-as-production function is self-limiting and needs, for some purposes, to be joined with the theory of the firm-as-governance structure. Organization theory makes...

What was obvious to many of us at the time has become even more evident since: the

This paper examines the progressive development of the new institutional economics over the past quarter century. It begins by distinguishing four levels of social analysis, with special emphasis on the institutional environment and the institutions of governance. It then turns to some of the good ideas out of which the NIE works: the description o...

[eng] Transaction cost economics analyzes the organization of economic activities as problem of governance of contractual relations. This approach combines research results in law, economics and organizational sciences to identify alternative governance modes, to point out their relevant attributes, and to explain their relative performances. Trans...

This paper explores the implications of going beyond transaction cost theory's implicit focus on domestic investors to include multinational actors. As developed herein, the discriminating alignment between the level of hazards (contractual and/or political) and the mode of governance carries over. In the open-economy context, such an alignment ref...

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 t...

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...

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...

The public bureaucracy is a puzzle. How is it that an organizational form that is so widely used is also believed to be inefficient--both in relation to a hypothetical ideal and in comparison with private bureaucracies? This article examines public bureaucracy through the lens of transaction cost economics, according to which the public bureaucracy...

This paper provides an economic analysis of multi-client, multi-service accounting firms. The objective is to aid in the development of a new framework for auditor independence. We adopt the modern theory of the economics of organization, which views organizational structures and relationships as the results of efforts to create and deliver value....

Whether or in what degree transaction cost economics is pertinent to public administration is still unresolved. Terry Moe, for example, expresses grave doubts that the successes of the new economics of organization in helping to better understand complex economic organization will carry over to the study of political organization (1990, p. 119). Ja...

Economics and organization theory were once alien fields. However, they have been drawn closer together as economics has broadened its outlook to include organization as an important economizing instrument and as organization theory has come to recognize the value of an economic perspective and approach. Thus, whereas these two fields used to talk...

This paper tracks my remarks at the September 1993 conference honoring Richard M. Cyert. It begins with some recollections of my years as a graduate student at GSIA in the early 1960s. I then shift to transaction cost economics and how this project relates to what I learned from Dick Cyert and others at Carnegie.

Although American Legal Realism fell on hard times, the objections of the Realists with legal formalism had substance earlier in the century and have substance today. As developed in this paper, there are many parallels between Legal Realism and older style institutional economics. Both failed for lack of operationalization. The New Institutional...

New Institutional Economics is a new way to look at how organizations function. Rather than seeing the firm as a "black box", Williamson shows how decision makers respond to economic factors WITHIN the firm -- what he calls "transaction cost economics" (TCE). In this series of studies, Williamson shows how complexity expands in organizations becaus...

Sumario: La naturaleza de la empresa -- Costos de transacción y mercados de trabajo internos -- La lógica de la organización económica -- La especifidad de los activos y la estructura de las relaciones verticales -- Los contratos incompletos y la teoría de la empresa -- Una revisión de la teoría de la empresa -- Coase, la competencia y la corporaci...

That the so-called Coase Theorem has had a huge impact on the way many economists think about their project is beyond dispute. As George Stigler observes (Stigler, 1992), Ronald Coase's 1960 (Coase, 1960) article on "The Problem of Social Cost" became "the most cited article in the litera- ture of the field, perhaps in the entire literature of econ...

This paper adopts the transaction cost economics perspective for purposes of examining hierarchies, markets, and power in the economy. Transaction cost economics works out of an economizing perspective in which markets and hierarchies are alternative modes of governance and the object is to ascertain which transactions go where and why. The role of...

The public bureau is a puzzle. On the one hand it is widely used. On the other it is believed to be very inefficient in comparison with private bureaus. Many social scientists appeal to politics, which they describe as inherently inefficient, to explain public bureaus. This paper examines public and private bureaus through the lens of transaction c...

This paper begins with a sketch of the New Institutional Economics, with special emphasis on the "institutional environment" (North and others) and the "institutions of governance" (Coase and others). Thereafter the paper mainly emphasizes the applications of transaction cost economics to the study of governance, the object being to effect an econo...

Why are the ambitions of economic development practitioners and reformers so often disappointed? One answer is that development policymakers and reformers are congenital optimists. Another answer is that good plans are regularly defeated by those who occupy strategic positions. An intermediate answer is that institutions are important, yet are pers...

There is much in the paper by Samuel Bowles and Herbert Gintis [“The Revenge of Homo Economicus: Contested Exchange and the Revival of Political Economy”] with which I agree. But there are also real differences—which is to be expected, since they and I examine economic organization through very different lenses. Thus whereas they view economic orga...

The profitability and growth of business firms is increasingly dependent upon the development and astute deployment of intangible (knowledge) assets. Wealth creation in an open world economy depends critically on technological innovation, and this in turn involves developing, owning, and astutely orchestrating knowledge assets and intellectual prop...

Institutional questions have become increasingly prominent in the evaluation of nearly every area of structural policy. The present article shows how formal economic analysis may be brought to bear on the problem of understanding institutions. It begins by reviewing the recent history of thought on the economics of organisations. It then outlines t...

This article argues that strategy, like charity, begins at home. Specifically, economy is the best strategy. That is not to say that strategizing efforts to deter or defeat rivals with clever ploys and positioning are unimportant. In the long run, however, the best strategy is to organize and operate efficiently.

This collection of papers is edited by renowned business thinker Oliver Williamson, who is currently Transamerica Professor of Corporate Strategy at the School of Business Administration at Berkeley. The fiftieth anniversary of the publication of Chester I. Barnard's remarkable and still influential book, The Functions of the Executive, was celebra...

This paper combines institutional economics with aspects of contract law and organization theory to identify and explicate the key differences that distinguish three generic forms of economic organization-market, hybrid, and hierarchy. The analysis shows that the three generic forms are distinguished by different coordinating and control mechanisms...

In 1937, Ronald H. Coase published The Nature of the Firm, a classic paper that raised fundamental questions about the concept of the firm in economic theory. Coase proposed that the comparative costs of organizing transactions through markets, rather than within firms, are the primary determinants of the size and scope of firms. This volume derive...

April 1990. -- December 1989, rev. April 1990.--P.1

This chapter discusses the operationalization of transaction cost economics. Vertical integration, an understanding of which serves as a paradigm for helping to unpack the puzzles of complex economic organization more generally, is described in the chapter. Some empirical tests of the transaction cost hypotheses are summarized in the chapter. Trans...

ABSTRACTA combined treatment of corporate finance and corporate governance is herein proposed. Debt and equity are treated not mainly as alternative financial instruments, but rather as alternative governance structures. Debt governance works mainly out of rules, while equity governance allows much greater discretion. A project‐financing approach i...

I argue here, as I have previously, that technology is neither fully determinative of nor irrelevant to economic organization. Transaction cost economizing occupies a prominent position in any effort to assess the efficacy of alternative forms of economic organization.

This study is based on the belief that economic organization is shaped by transaction cost economizing decisions. It sets out the basic principles of transaction cost economics, applies the basic arguments to economic institutions, and develops public policy implications. Any issue that arises, or can be recast as a matter of contracting, is useful...

Gregory Dow's assessment of transaction cost economics is both thoughtful and provocative. Although we agree on many matters, these remarks focus on our differences. I begin with a brief sketch of the framework out of which transaction cost economics operates. I then examine the purported bias of transaction cost economics in favor of capital manag...

This paper examines the optimization problem of firm and market organization in which both production cost and transaction cost differences are expressed as a function of asset specificity. In general, markets enjoy advantages by aggregating the demands of many buyers, thereby realizing economies of scale or scope. Such production cost savings need...