Oliver E. Williamson University of Pennsylvania The transaction cost approach to the study of economic organization regards the transaction as the basic unit of analysis and holds that an understanding of transaction cost economizing is central to the study of organizations. Applications of this approach require that
For a more complete discussion of opportunism, see Oliver E. Williamson, supra note 1, at 7-10, 26-30. For a recent application see Benjamin Klein, Robert G. Crawford, & Armen A.
Williamson (1975, 1979) provides a coherent framework for investigating determinants of verti-cal integration over different industries. Further-more, Williamson has persuasively argued that transactions cost considerations underlie such prominent reasons for vertical integration as the elimination of monopoly distortions, technical
Like Barnard (1938), Williamson provides, in The Mecha-nisms of Governance, a conceptual framework simple enough to be used and yet exact and complex enough to accommodate continuing insights into the workings of organizations. As the poet Longfellow suggests, "Art is long, and time is fleeting" (1902: 29). Williamson is leaving his footprints
Williamson's arguments-as we show in this article-are not only inapplicable to most decision-making situations in firms but, if so applied, are also likely to adversely affect their performance.
[Williamson 1975]. Hierarchies replicate the market mode within the firm except for the ex-ercise of authority. Fiat is one of the distinguishing features of hierar-chies, and "differences. . . . in adaptive, sequential decision-making respects are largely explained by differential access to fiat" [Williamson 1992, 340].
(Williamson, 1991). Implicit in the foregoing and important to the transaction-cost economics enterprise is the assumption that contracts, albeit incom-plete, are interpreted in a farsighted manner, according to which economic actors look ahead, perceive potential hazards, and embed transactions in governance structures that have
in the shadow of Williamson's (1975) book led to the proposition that asset specificity is the critical determinant of the choice between markets and hierarchies (Williamson, 1985). Indeed, transaction cost theory maintains that "asset specificity is the big locomotive to which transaction cost econom ics owes much of its predictive content ...
Williamson's analysis of the control embedded in and exercised through hierarchical governance structures parallels Gamson's (1968) description of "social control" power in several ways. First, for Williamson and social control power analysts such as Talcott Par-sons, managerial authority is not a form of domination exercised for personal gain.
ism of Oliver Williamson (1975). Insti-tutionalists also developed a number of theories of pricing behavior in imper-fectly competitive markets (Marc Tool 1991). Traces of the surviving influence of "old" institutionalist ideas are found in many other areas of theoretical and applied economics. Indeed, the influ-ence of institutionalism ...