Transaction Cost Economics and Organization Theory

Abstract

Abstract This paper focuses on connections between transaction cost economics and organization theory, and argues that a three‐part relation is taking shape. The first and most important of these is that transaction cost economics has been (and will continue to be) massively influenced by concepts and empirical regularities that have their origins in organization theory. Second, there are key concepts out of which transaction cost economics works to which organization theorists can (and many do) productively relate. Third, healthy tension survives – as revealed by an examination of phenomena for which rival interpretations have been advanced, remain unsolved, and provoke controversy. The essay is arranged as follows: some background is presented on institutional economics; a three‐level schema is proposed for studying economic organization; some of the more important ways in which transaction cost economics has benefitted from organization theory are examined; the key concepts in transaction cost economics are sketched; empirical regularities, as discerned through the lens of transaction cost economics, that are pertinent to organization theory are discussed; contested terrain (unresolved tensions) is surveyed; and concluding remarks are made.