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The Theory of the Firm as Governance Structure: From Choice to Contract

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  • Oliver E. Williamson

Abstract

The propositions that organization matters and that it is susceptible to analysis were long greeted by skepticism by economists. One reason why this message took a long time to register is that it is much easier to say that organization matters than it is to show how and why. The prevalence of the science of choice approach to economics has also been an obstacle. As developed herein, the lessons of organization theory for economics are both different and more consequential when examined through the lens of contract. This paper examines economic organization from a science of contract perspective, with special emphasis on the theory of the firm.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/089533002760278776
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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 16 (2002)
Issue (Month): 3 (Summer)
Pages: 171-195

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Handle: RePEc:aea:jecper:v:16:y:2002:i:3:p:171-195

Note: DOI: 10.1257/089533002760278776
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  1. Simon, Herbert A, 1978. "Rationality as Process and as Product of Thought," American Economic Review, American Economic Association, vol. 68(2), pages 1-16, May.
  2. Williamson, Oliver E, 1983. "Credible Commitments: Using Hostages to Support Exchange," American Economic Review, American Economic Association, vol. 73(4), pages 519-40, September.
  3. Crocker, Keith J & Masten, Scott E, 1996. "Regulation and Administered Contracts Revisited: Lessons from Transaction-Cost Economics for Public Utility Regulation," Journal of Regulatory Economics, Springer, vol. 9(1), pages 5-39, January.
  4. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
  5. Peltzman, Sam, 1991. "The Handbook of Industrial Organization: Review Article," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 201-17, February.
  6. Vernon, John M & Graham, Daniel A, 1971. "Profitability of Monopolization by Vertical Integration," Journal of Political Economy, University of Chicago Press, vol. 79(4), pages 924-25, July-Aug..
  7. Shelanski, Howard A & Klein, Peter G, 1995. "Empirical Research in Transaction Cost Economics: A Review and Assessment," Journal of Law, Economics and Organization, Oxford University Press, vol. 11(2), pages 335-61, October.
  8. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
  9. Warren-Boulton, Frederick R, 1974. "Vertical Control with Variable Proportions," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 783-802, July/Aug..
  10. Williamson, Oliver E, 1991. "Economic Institutions: Spontaneous and Intentional Governance," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 159-87, Special I.
  11. Drew Fudenberg & Bengt Holmstrom & Paul Milgrom, 1987. "Short-Term Contracts and Long-Term Agency Relationships," Working papers 468, Massachusetts Institute of Technology (MIT), Department of Economics.
  12. Williamson, Oliver E, 1999. "Public and Private Bureaucracies: A Transaction Cost Economics Perspective," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(1), pages 306-42, April.
  13. Riordan, Michael H. & Williamson, Oliver E., 1985. "Asset specificity and economic organization," International Journal of Industrial Organization, Elsevier, vol. 3(4), pages 365-378, December.
  14. Westfield, Fred M, 1981. "Vertical Integration: Does Product Price Rise or Fall?," American Economic Review, American Economic Association, vol. 71(3), pages 334-46, June.
  15. Buchanan, James M, 1975. "A Contractarian Paradigm for Applying Economic Theory," American Economic Review, American Economic Association, vol. 65(2), pages 225-30, May.
  16. Williamson, Oliver E, 1988. " Corporate Finance and Corporate Governance," Journal of Finance, American Finance Association, vol. 43(3), pages 567-91, July.
  17. Patrick Bajari & Steven Tadelis, 1999. "Incentives versus Transaction Costs: A Theory of Procurement Contracts," Working Papers 99029, Stanford University, Department of Economics.
  18. Schmalensee, Richard, 1973. "A Note on the Theory of Vertical Integration," Journal of Political Economy, University of Chicago Press, vol. 81(2), pages 442-49, Part I, M.
  19. Richard A. Posner, 1972. "The Appropriate Scope of Regulation in the Cable Television Industry," Bell Journal of Economics, The RAND Corporation, vol. 3(1), pages 98-129, Spring.
  20. Williamson, Oliver E, 1971. "The Vertical Integration of Production: Market Failure Considerations," American Economic Review, American Economic Association, vol. 61(2), pages 112-23, May.
  21. Demsetz, Harold, 1983. "The Structure of Ownership and the Theory of the Firm," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 375-90, June.
  22. Oliver E. Williamson, 2000. "The New Institutional Economics: Taking Stock, Looking Ahead," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 595-613, September.
  23. Lyons, Bruce R, 1996. "Empirical Relevance of Efficient Contract Theory: Inter-firm Contracts," Oxford Review of Economic Policy, Oxford University Press, vol. 12(4), pages 27-52, Winter.
  24. George J. Stigler, 1951. "The Division of Labor is Limited by the Extent of the Market," Journal of Political Economy, University of Chicago Press, vol. 59, pages 185.
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