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Institutional Economics at the Micro Level? What Transaction Costs Theory Could Listen From Original Institutionalism (In the Spirit of Building Bridges)


  • Huascar Pessali

    (Federal University of Parana, Brazil)

  • Ramon Fernandez

    (Federal University of Parana, Brazil)


Inertia in academia sometimes obstructs the development of important insights. That is one reason for the specially long gap separating Coase's seminal paper [1937] that laid the foundations of current Transaction Cost Economics (TCE) and the efforts of scholars to develop his ideas. But as TCE evolved and merged with the name of Oliver Williamson, it has absorbed a tension 'between an intuitive commitment to realism...and his commitment to some core presumptions of mainstream economics' [Hodgson 1998]. Most TCE scholars seem to rely on the latter commitment, and this could mean losing a chance of enriching economics in its methodological and theoretical foundations. This paper regroups and comments criticisms from 'Original' Institutional Economics (OIE) to TCE in the spirit of building bridges on: i) discrepancies among TCE’s and Commons’ concepts of transaction; ii) TCE’s use of efficiency as a status quo rationalization; iii) the static analysis that ignores institutional feed-backs; iv) the assumption of opportunism; and v) the incompatibility of bounded rationality and optimizing behavior.

Suggested Citation

  • Huascar Pessali & Ramon Fernandez, 2005. "Institutional Economics at the Micro Level? What Transaction Costs Theory Could Listen From Original Institutionalism (In the Spirit of Building Bridges)," Method and Hist of Econ Thought 0511001, EconWPA.
  • Handle: RePEc:wpa:wuwpmh:0511001
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    References listed on IDEAS

    1. Nozick, Robert, 1994. "Invisible-Hand Explanations," American Economic Review, American Economic Association, vol. 84(2), pages 314-318, May.
    2. Rubinstein, Ariel, 1991. "Comments on the Interpretation of Game Theory," Econometrica, Econometric Society, vol. 59(4), pages 909-924, July.
    3. Schelling, Thomas C, 1969. "Models of Segregation," American Economic Review, American Economic Association, vol. 59(2), pages 488-493, May.
    4. J. Barkley Rosser, 1999. "On the Complexities of Complex Economic Dynamics," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 169-192, Fall.
    5. Joshua M. Epstein & Robert L. Axtell, 1996. "Growing Artificial Societies: Social Science from the Bottom Up," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262550253, January.
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    Cited by:

    1. Elsner, Wolfram & Hocker, Gero & Schwardt, Henning, 2009. "Simplistic vs. Complex Organization: Markets, Hierarchies, and Networks in an 'Organizational Triangle'," MPRA Paper 14315, University Library of Munich, Germany.
    2. Jonathan Gander & Alison Rieple, 2004. "How Relevant is Transaction Cost Economics to Inter-Firm Relationships in the Music Industry?," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 28(1), pages 57-79, February.
    3. Janis Kapler, "undated". "The Theory of the Firm, the Theory of Competition and the Transnational Corporation," Working Papers 6, University of Massachusetts Boston, Economics Department.

    More about this item


    Transaction Cost Economics; Oliver Williamson; New Institutional Economics; Institutionalism; transaction costs;

    JEL classification:

    • B - Schools of Economic Thought and Methodology

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