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Where do transactions come from? Modularity, transactions, and the boundaries of firms

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  • Carliss Y. Baldwin
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    Abstract

    This article constructs a theory of the location of transactions and the boundaries of firms in a productive system. It proposes that systems of production can be viewed as networks, in which tasks-cum-agents are the nodes and transfers-of material, energy and information-between tasks and agents are the links. Transactions are defined as mutually agreed-upon transfers with compensation and are located within the task network. Placing a transaction in a particular location in turn requires work to define, count (or measure), and pay for the transacted objects. The costs of this work (labeled mundane transaction costs) are generally low at the thin crossing points of the task network, which correspond to module boundaries. Therefore, transactions are more likely to be located at module boundaries than in their interiors. Several implications arise from this theory. Among these: Modularizations create new module boundaries, hence new transaction locations. Areas in the task network where transfers are dense and complex should be located in transaction-free zones , so that the cost of transacting does not overburden the system. The thin crossing points between transaction-free zones constitute breakpoints , where firms and industries may split apart. Copyright 2008 , Oxford University Press.

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    File URL: http://hdl.handle.net/10.1093/icc/dtm036
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    Bibliographic Info

    Article provided by Oxford University Press in its journal Industrial and Corporate Change.

    Volume (Year): 17 (2008)
    Issue (Month): 1 (February)
    Pages: 155-195

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    Handle: RePEc:oup:indcch:v:17:y:2008:i:1:p:155-195

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    Cited by:
    1. Koen Frenken & Stefan Mendritzki, 2012. "Optimal modularity: a demonstration of the evolutionary advantage of modular architectures," Journal of Evolutionary Economics, Springer, vol. 22(5), pages 935-956, November.
    2. Jean-Michel Glachant, 2009. "Regulating Networks in the New Economy," EUI-RSCAS Working Papers 5, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
    3. Cécile Cézanne & Marianne Rubinstein, 2010. "La RSE comme instrument de la gouvernance d'entreprise," Post-Print hal-00628645, HAL.
    4. Dubois, Ute, 2009. "Adaptability of competitive electricity reforms a modular analysis," Energy Policy, Elsevier, vol. 37(4), pages 1213-1221, April.
    5. Richardson, Alan J. & Kilfoyle, Eksa, 2009. "Accounting in markets, hierarchies and networks: The role of accounting in the transnational governance of postal transactions," Accounting, Organizations and Society, Elsevier, vol. 34(8), pages 939-956, November.
    6. Vincent Rious & Jean-Michel Glachant & Yannick Perez & Philippe Dessante, 2008. "The Diversity of Design of TSOs," Working Papers 0805, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
    7. Fixson, Sebastian K. & Park, Jin-Kyu, 2008. "The power of integrality: Linkages between product architecture, innovation, and industry structure," Research Policy, Elsevier, vol. 37(8), pages 1296-1316, September.
    8. Cécile Cézanne & Laurence Saglietto, 2011. "Capital humain, prestataires de services logistiques et frontières de la firme," Post-Print hal-00628451, HAL.
    9. Felin, Teppo & Zenger, Todd R., 2014. "Closed or open innovation? Problem solving and the governance choice," Research Policy, Elsevier, vol. 43(5), pages 914-925.
    10. Garzarelli, Giampaolo & Fontanella, Riccardo, 2010. "Open Source Software Production, Spontaneous Input, and Organizational Learning," MPRA Paper 22949, University Library of Munich, Germany.
    11. Cheng, Liang-Chieh (Victor), 2011. "Assessing performance of utilizing organizational modularity to manage supply chains: Evidence in the US manufacturing sector," International Journal of Production Economics, Elsevier, vol. 131(2), pages 736-746, June.
    12. Ansari, Shahzad (Shaz) & Krop, Pieter, 2012. "Incumbent performance in the face of a radical innovation: Towards a framework for incumbent challenger dynamics," Research Policy, Elsevier, vol. 41(8), pages 1357-1374.
    13. Gil, Nuno & Tether, Bruce S., 2011. "Project risk management and design flexibility: Analysing a case and conditions of complementarity," Research Policy, Elsevier, vol. 40(3), pages 415-428, April.
    14. Laurent Tanguy, 2011. "De la théorie des couts de transaction a une économie des couts de traduction -une voie de passage conceptuelle pour suivre l'émergence des dispositifs de contrôle inter-organisationnel-," Post-Print hal-00650584, HAL.
    15. Raasch, Christina & Lee, Viktor & Spaeth, Sebastian & Herstatt, Cornelius, 2013. "The rise and fall of interdisciplinary research: The case of open source innovation," Research Policy, Elsevier, vol. 42(5), pages 1138-1151.

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