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Opportunism is not the only reason why firms exist: why an explanatory emphasis on opportunism may mislead management strategy

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  • Geoffrey M. Hodgson

Abstract

The object of the present essay is neither to overturn transaction cost economics nor to deny the reality of opportunism. Instead, it is to question the explanatory role of the concept of opportunism in the transaction cost analysis of Oliver Williamson and his followers. Williamson has suggested that potential or actual opportunism emerges as the source of the 'transaction costs' involved in monitoring and enforcing contracts. On the contrary, it is shown here that there are several additional and likely sources of contract default or incomplete performance. Williamson's explanatory concentration on opportunism thus misidentifies the reasons for different hierarchical governance structures in the real world. As these additional sources are ignored, the emphasis on opportunism can impair a true understanding of the inner workings of the firm, and be a misleading guide for practical questions of organizational design and corporate strategy. Copyright 2004, Oxford University Press.

Suggested Citation

  • Geoffrey M. Hodgson, 2004. "Opportunism is not the only reason why firms exist: why an explanatory emphasis on opportunism may mislead management strategy," Industrial and Corporate Change, Oxford University Press, vol. 13(2), pages 401-418, April.
  • Handle: RePEc:oup:indcch:v:13:y:2004:i:2:p:401-418
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    Cited by:

    1. Silvia Sacchetti & Ermanno Tortia, 2016. "A needs theory of governance," Econometica Working Papers wp59, Econometica.
    2. Peter G. Klein & Michael E. Sykuta (ed.), 2010. "The Elgar Companion to Transaction Cost Economics," Books, Edward Elgar Publishing, number 4136.
    3. Geoffrey M. Hodgson, 2010. "Limits of Transaction Cost Analysis," Chapters,in: The Elgar Companion to Transaction Cost Economics, chapter 28 Edward Elgar Publishing.
    4. Nathalie Lazaric & Alain Raybaut, 2007. "Knowledge, Hierarchy and incentives: Why human resource policy and trust matter," Post-Print hal-00453292, HAL.
    5. Dold, Malte & Krieger, Tim, 2017. "Competition or conflict? Beyond traditional ordo-liberalism," Discussion Paper Series 2017-02, University of Freiburg, Wilfried Guth Endowed Chair for Constitutional Political Economy and Competition Policy.
    6. Phanish Puranam & Marlo Raveendran, 2013. "Interdependence and organization design," Chapters,in: Handbook of Economic Organization, chapter 11 Edward Elgar Publishing.
    7. Cordes, Christian & Richerson, Peter J. & McElreath, Richard & Strimling, Pontus, 2008. "A naturalistic approach to the theory of the firm: The role of cooperation and cultural evolution," Journal of Economic Behavior & Organization, Elsevier, vol. 68(1), pages 125-139, October.
    8. Alain Verbeke & Liena Kano, 2013. "The transaction cost economics (TCE) theory of trading favors," Asia Pacific Journal of Management, Springer, vol. 30(2), pages 409-431, June.

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