1. TRANSACTION COST ECONOMICS: THEORY
Comparative Economic Organization:
The Analysis of Discrete Structural Alternatives
By Oliver E. Williamson
ASQ, 1991
Cited 9251 (source: Google Scholar)
Valerie Isakova Fall 2018

2. Oliver Williamson Influenced by Coase, Simon, Arrow and Chandler
BS MIT, MBA Stanford, PhD Carnegie Mellon University (in 3 years!)
Worked at University of Pennsylvania, Yale and UC Berkeley
2009: the Nobel Memorial Prize in Economics for "his analysis of economic governance, especially the boundaries of the firm”
New Institutional Economics

3. SUBJECT, PURPOSE AND APPROACH
Economic organization
Comparative institutional point of view
Extend and refine the apparatus of TCE
Identify and explicate the key differences that distinguish three generic forms of economic organization - market, hybrid, and hierarchy
Respond to 4 criticisms:
The institutional environment and the institution of governance have developed in disjunctive ways.
TCE neglects intermediate and hybrid forms.
Disproportionate attention to transactions as compared with governance.
TCE for non-Western / non-capitalist economies?
Discrete structural analysis

4. KEY IDEAS DIFFERENT MARKET HYBRID HIERARCHY Institutional Economics
COORDINATING AND CONTROLLING MECHANISMS
Contract Law
Organizational
Theory
ABILITIES TO ADAPT TO DISTURBANCES
DIFFERENT
TYPE OF CONTRACT LAW

5. Discrete Structural Analysis FIRST-ORDER ECONOMIZING
Simon, 1978
3 FACTORS
DIFFERENT MEANS
DESCRETE CONTRACT LAW
FIRST-ORDER ECONOMIZING
Set of attributes that support each other
Other forms die due to inconsistent attributes

6. FACTOR 2. CONTRACT LAW The ideal transaction in law and economics
CLASSICAL CONTRACT LAW
NEOCLASSICAL CONTRACT LAW
& EXCUSE DOCTRINE
FORBEARANCE
The ideal transaction in law and economics
The identity of the parties is irrelevant
Buyers and sellers bear no dependency
Relieves from strict enforcement
Parties are bilaterally dependent to a non-trivial degree
Identity plainly matters
Elastic contracting mechanism
Middle-range or consequential disturbances
Arbitration
Bilateral adaptation effected through fiat
Hierarchy is its own court
The business judgment rule
Rationale:
Parties to an internal dispute have deep knowledge (too costly to submit to the court)
Appealing to the court would under-mine the efficacy and integrity of hierarchy
AUTONOMOUS MARKET
HYBRID
HIERARCHY

7. FACTOR 3. FIRST-ORDER ECONOMIZING
EFFECTIVE ADAPTION
ELIMINATION OF WASTE
Allocative efficiency and marginal analysis VS.
Organizational efficiency and discrete structural alternatives

8. DIMENSIONALIZING GOVERNANCE
ADAPTION
INSTRUMENTS
CONTRACT LAW
Adaptation A (autonomy) Hayek 1945
Incentive intensity
Adaptation C (cooperation) Barnard 1938
Administrative controls
1.Transactions differ in their attributes and are aligned with governance structures.
2. Governance structures differ in their costs and competencies, in a discriminating (mainly, TCE) way.

9. DIMENSIONALIZING GOVERNANCE

10. DISCRIMINATING ALIGNMENT
Transactions differ in:
the frequency with which transactions recur;
the uncertainty to which transactions are subject;
and the type and degree of asset specificity involved in supplying the good or service in question
Asset specificity
Definition: The degree to which an asset can be redeployed to alternative uses and by alternative users without sacrifice of productive value.
Types:
Site
Physical asset
Human asset
Brand name capital
Discrete investments in general purpose plant
Temporal specificity
Creates bilateral dependency and poses added contracting hazards

11. REDUCED FORM ANALYSIS

12. Comparative Statics
How equilibrium distributions of transactions will change in response to disturbances in the institutional environment
4 KINDS:
Property rights (government expropriation, leakage)
Contract law
Reputation effects
Uncertainty

14. CONCLUSIONS: 5 KEY POINTS
The economic problem of society is adaptation (autonomous and coordinated).
Each generic form of governance is based on a distinctive form of contract law. The contract law of forbearance applies to internal organization and supports fiat.
The hybrid form of organization possesses its own disciplined rationale.
Each generic form of governance is revealed by the dimensionalization. Explication of governance is developed.
The institutional environment and the institutions of governance are joined. The institutional environment is considered a locus of shift parameters, changes in which parameters induce shifts in the comparative costs of governance.