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Toward a Unified Transaction Cost Theory of Economic Organization

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  • Lewis S. Davis

Abstract

This paper develops a general equilibrium model endogenizing labor specialization, firm size, firm specialization, interfirm trade, and economic fragmentation. In contrast to the standard neoinstitutionalist understanding of firms and markets as substitutes in organizing production, firms and markets are shown to be complements in reaping economies to the division of labor. As a result, firm size varies directly, rather than inversely, with the extent of interfirm trade. Growth is facilitated by increases in the complexity of economic organization, involving increases in the division of labor, the size and specialization of firms, market size, and the complexity of interfirm trade.

Suggested Citation

  • Lewis S. Davis, 2003. "Toward a Unified Transaction Cost Theory of Economic Organization," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 159(3), pages 571-593, September.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200309)159:3_571:tautct_2.0.tx_2-w
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    References listed on IDEAS

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    1. Tamura, Robert, 1992. "Efficient equilibrium convergence: Heterogeneity and growth," Journal of Economic Theory, Elsevier, vol. 58(2), pages 355-376, December.
    2. Gary S. Becker & Kevin M. Murphy, 1994. "The Division of Labor, Coordination Costs, and Knowledge," NBER Chapters, in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education, Third Edition, pages 299-322, National Bureau of Economic Research, Inc.
    3. Krugman, Paul, 1994. "Complex Landscapes in Economic Geography," American Economic Review, American Economic Association, vol. 84(2), pages 412-416, May.
    4. Edwards, Brian K & Starr, Ross M, 1987. "A Note on Indivisibilities, Specialization, and Economies of Scale," American Economic Review, American Economic Association, vol. 77(1), pages 192-194, March.
    5. Rosen, Sherwin, 1983. "Specialization and Human Capital," Journal of Labor Economics, University of Chicago Press, vol. 1(1), pages 43-49, January.
    6. Cheung, Steven N S, 1983. "The Contractual Nature of the Firm," Journal of Law and Economics, University of Chicago Press, vol. 26(1), pages 1-21, April.
    7. Barzel, Yoram & Yu, Ben T, 1984. "The Effect of the Utilization Rate on the Division of Labor," Economic Inquiry, Western Economic Association International, vol. 22(1), pages 18-27, January.
    8. Kim, Sunwoong, 1989. "Labor Specialization and the Extent of the Market," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 692-705, June.
    9. Geoffrey M. Hodgson (ed.), 1993. "The Economics of Institutions," Books, Edward Elgar Publishing, number 557.
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    Citations

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    Cited by:

    1. Davis, Lewis S., 2006. "Growing apart: The division of labor and the breakdown of informal institutions," Journal of Comparative Economics, Elsevier, vol. 34(1), pages 75-91, March.
    2. Davis, Lewis S., 2008. "Scale effects in growth: A role for institutions," Journal of Economic Behavior & Organization, Elsevier, vol. 66(2), pages 403-419, May.
    3. Davis, Lewis S., 2010. "Institutional flexibility and economic growth," Journal of Comparative Economics, Elsevier, vol. 38(3), pages 306-320, September.

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    More about this item

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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