1. Comparative Economic Organization: The Analysis of Discrete Structural Alternatives Oliver E. Williamson, Published in Administrative Science Quarterly
Wonjoon Chung
School of Labor and Employment Relations (LER)
September 4th, 2012

2. About Oliver E. Williamson…
American economist
Professor at University of California, Berkeley
Nobel Memorial Prize in Economic Science (2009)
Transaction cost economics theory

3. Research Purpose
To identify and explicate the key differences that distinguish three generic forms of economic organization: market, hybrid, and hierarchy
To unify two disjunctive areas of institutional economics: the institutional environment and the institutions of governance

4. Discrete Structural Analysis
Factors that support discrete structural analysis in the paper
Firms are not extension of markets but employ different means
Discrete contract law differences support and define each form
Marginal analysis is concerned with second order effects – economizing (via discrete structural governance) is first order
Contract Law
Classic contract law (Williamson, 1979, 1985)
Neoclassical contract law
Neoclassical contract law is characterized by the excuse doctrine and forbearance (hierarchy)

5. Discrete Structural Analysis
The underlying rationale for forbearance law
parties have deep knowledge of dispute and efficient solutions (it would be costly to communicate them, and they may not be verifiable outside the organization)
Permitting internal disputes in courts would undermine the nature of the firm.
First-Order Economizing
Effective adaptation and elimination of waste
Allocative efficiency → Neglect of organizational efficiency

6. Dimensionalizing Governance
The discriminating alignment hypothesis
Transactions (which differ in their content) are aligned with governance structures (which differ in their costs and competencies).
Adaptability and incentive/control instruments are key.

7. Discriminating Alignment
Asset specificity
the degree to which an asset can [not] be redeployed to alternative uses and by alternative users without sacrifice of productive value
Alignment
Plot the governance costs
as a function of the asset specificity
(Ignoring the revenue and production-cost
consequences of specificity)

8. Comparative Statistics
To consider how equilibrium distributions of transactions will change in response to disturbances in the institutional environment
Choices are discrete
[Comparative statistics]
Property rights
Governmental expropriation
Leakage
Contract law
Uncertainty (Figure 3)

9. Conclusion
The economic problem of society is described: adaption, autonomous and coordinated kinds
Each generic form of governance is shown to rest on a distinctive form of contract law
Hybrid form of organization has own disciplined rationale
The logic of each generic form of governance: dimensionalization and explication of governance
The institutional environment and the institutions of governance: Parameter shifts