Transaction Cost Economics:Basic Concepts and Theoretical Extensions
|Author:||Mgr. Sylvester van Koten|
|Year:||2002 - winter|
|Leaders:|| † RNDr. Miron Tegze CSc.
|Work type:|| Economic Policy
|Awards and prizes:||M.A. with distinction from the Dean of the Faculty of Social Sciences for an excellent state-final examination performance and for an extraordinarily good masters diploma thesis|
|Abstract:||In this paper I describe Oliver Williamson's theory of Transaction Cost Economics (Williamson, 1971, 1985, 1996, 2000). His theory gives a comparative account of two different mechanisms of co-ordination: the mechanism of free choice (the market co-ordination mechanism) and the mechanism of central planning. He especially highlights an important and frequently occurring market failure: the breakdown of co-operation when specific investments are involved. This can also be seen as a co-ordination failure; the market co-ordination mechanism fails to realise a profitable co-operation. As the breakdown of co-operation involves a loss of profit, certain second-best arrangements can be designed, to reap at least part of the lost profit. These arrangements are mainly of an institutional character; they involve complex contracting practices and, in the extreme, the emergence of a unified firm (which amounts to the replacement of the market co-ordination mechanism by the central planner mechanism).