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On the Transaction Cost Determinants of Vertical Integration

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Author Info
Michael D. Whinston
Abstract

The transaction cost approach to the organization of firms has been among the most significant advances in industrial organization in the last 25 years. Much of this work has taken the transaction cost economics view of Williamson (1975, 1979, 1985) and Klein, Crawford, and Alchian (1978) in which high levels of quasi-rents are taken to increase the likelihood of vertical integration. More recently, however, the more formal property rights theory of Grossman and Hart (1986) and Hart and Moore (1990) has received considerable attention as a theory of integration. This article explores the predictions of property rights theory to assess what the extensive supporting evidence on transaction cost economics tells us about the property rights theory's empirical relevance. The article concludes that this evidence sheds little light on the relevance of the property rights theory and discusses how we might try to learn more. Copyright 2003, Oxford University Press.

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Article provided by Oxford University Press in its journal The Journal of Law, Economics, and Organization.

Volume (Year): 19 (2003)
Issue (Month): 1 (April)
Pages: 1-23
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Handle: RePEc:oup:jleorg:v:19:y:2003:i:1:p:1-23

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  1. Oliver E. Williamson, 2005. "The Economics of Governance," American Economic Review, American Economic Association, vol. 95(2), pages 1-18, May. [Downloadable!] (restricted)
  2. Boudreau, Kevin, 2006. "The Boundaries of the Platform: Vertical Integration and Economic Incentives in Mobile Computing," Working papers 30609, Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
  3. Rehn, Eric, 2007. "Public Hospitals - Incentives and Organization," Working Papers 2007:13, Lund University, Department of Economics, revised 01 Apr 2008. [Downloadable!]
  4. Robert Feenstra & Gordon Hanson & Songhua Lin, 2004. "The Value of Information in International Trade: Gains to Outsourcing through Hong Kong," Advances in Economic Analysis & Policy, Berkeley Electronic Press, vol. 4(1), pages 1071-1071. [Downloadable!] (restricted)
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  5. Patrick W. Schmitz, 2006. "Information Gathering, Transaction Costs, and the Property Rights Approach," American Economic Review, American Economic Association, vol. 96(1), pages 422-434, March. [Downloadable!] (restricted)
    Other versions:
  6. Alla Lileeva & Johannes Van Biesebroeck, 2007. "Outsourcing when Investments are Specific and Complementary," Working Papers tecipa-287, University of Toronto, Department of Economics. [Downloadable!]
  7. Sharon Novak & Scott Stern, 2007. "Complementarity Among Vertical Integration Decisions: Evidence from Automobile Product Development," NBER Working Papers 13232, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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