Williamson's Transaction Cost Theory Research Articles

Effect of Transaction Rules on Enterprise Transaction Costs Based on Williamson Transaction Cost Theory in Nanhai, China

The high transaction costs due to the incomplete information and transaction rules of the rural collective construction land (RCCL) market indicate that the government must improve the rural collective construction land market. Transaction rules are an important means for the government to intervene in the market and promote the development of market order, to secure land tenure, and to improve the disclosure of information. Vertical integration may reduce enterprise transaction costs but will increase the governance cost of internal organizations in enterprises. Land commercialization and corporate governance restructuring is a considerable challenge worldwide. Using a field survey in Nanhai district, Guangdong province, China, we estimated how the transaction costs of the RCCL are influenced not only by three dimensions of transaction rules—openness, equity, and justice—but also by the human asset in EC or EJC. Tobit models were constructed, and the results show that (1) the greater number of collective leaders, the higher the enterprise transaction cost (human asset in EC or EJC increases transaction costs of enterprises) and (2) the transaction rules are not sufficiently open or fair, which leads to high costs of market information searching, opportunism, and corruption. The transaction information is not transparent and the lag in transaction supervision mode gives rise to unfair transactions, in which the formation mode of land price is unreasonable. Therefore, we suggest that the transaction rules of RCCL market should be further improved in the three dimensions of openness, equity, and justice. Chinese authorities should strengthen their current efforts to build a more open and fair market by reducing the transaction costs of enterprises and improving the transaction efficiency. Our work provides some insights into the improvement of market efficiency which will contribute to the development of the RCCL market in other areas of China and worldwide.

Institutional Economics, Social Dilemmas, and the Complexity‐Sustainability Trade‐off (A response to Hielscher and Pies)

Drawing inspiration from Niklas Luhmann's social systems theory, the present note argues that the complexity of social systems has the potential to undermine their sustainability and thus to generate social dilemmas. The conceptual construct of the ‘complexity‐sustainability trade‐off’ is invoked to make the point that ensuring sustainability, if at all possible, requires controlling the proliferation of systemic complexity. To some extent, this control is feasible through structural couplings that correspond to the economic concept of the internalization of externalities. If this solution falls short of meeting the sustainability goals, systemic complexity can be alternatively controlled through the dampening of systemic imperatives, which translates, at the individual level, into the weakening of incentives. Williamson's transaction cost theory of for‐profit hierarchy and Hansmann's trustworthiness theory of nonprofit organizations present cases in point.

Addressing governance challenges in the provision of animal health services: A review of the literature and empirical application transaction cost theory

Providing adequate animal health services to smallholder farmers in developing countries has remained a challenge, in spite of various reform efforts during the past decades. The focuses of the past reforms were on market failures to decide what the public sector, the private sector, and the “third sector” (the community-based sector) should do with regard to providing animal health services. However, such frameworks have paid limited attention to the governance challenges inherent in the provision of animal health services. This paper presents a framework for analyzing institutional arrangements for providing animal health services that focus not only on market failures, but also on governance challenges, such as elite capture, and absenteeism of staff. As an analytical basis, Williamson’s discriminating alignment hypothesis is applied to assess the cost-effectiveness of different institutional arrangements for animal health services in view of both market failures and governance challenges. This framework is used to generate testable hypotheses on the appropriateness of different institutional arrangements for providing animal health services, depending on context-specific circumstances. Data from Uganda and Kenya on clinical veterinary services is used to provide an empirical test of these hypotheses and to demonstrate application of Williamson's transaction cost theory to veterinary service delivery. The paper concludes that strong public sector involvement, especially in building and strengthening a synergistic relation-based referral arrangement between paraprofessionals and veterinarians is imperative in improving animal health service delivery in developing countries.

Innovation: a systemic perspective – developing a systemic innovation theory

Purpose – The primary aim of the article is to create a systemic innovation theory. Design/methodology/approach – In discussing the above, the article will draw on institutional theory, Miller's theory of living systems and systemic thinking. North's “action theory” and Asplund's “motivation theory” are also used to explain aspects of institutional innovations. Findings – A systemic innovation theory, based on 14 propositions. Research limitations/implications – Further research should investigate the connection between innovation and economic crises. Practical implications – Organizations, countries or regions, such as the EU, must make institutional changes that promote economic changes. Originality/value – First, the article provides a new understanding of processes which foster innovation. Second, it attempts to provide a brief elaboration of Williamson's transaction cost theory. Third, it provides a new classification of service innovation, making it possible to make an analytical distinction between tangible and intangible service innovations. This distinction makes it possible to integrate service innovation as a natural element in all organizations. Fourth, the article provides a conceptual framework (“coin the frame”) around what the author has termed Asplund's “motivation theory” and North's “action theory”.

Integrating transaction cost economics and the resource-based view in services and innovation

This study examines the complementary nature of Williamson's transaction cost theory and that of the resource-based view in the integration or externalisation of activities, with particular reference to services. Assessing comparative costs, idiosyncratic demands and core competences form the criteria for make or buy decisions, although the analysis of services endows idiosyncratic demands with particular relevance when internalisation of services does neither contribute cost advantages nor others related to the core competences of the firm. In addition to these make or buy questions, this study considers the front/back model in cases where the firm manages services internally.

Incentive intensity, forbearance law and the governance of transactions

This paper uses a simple make-or-buy model to summarize and illustrate some of the distinguishing aspects of Williamson's transaction cost theory. It is shown that each mode of governance is associated with a different degree of incentive intensity, which in turn is attributable to the difference in court access and in the control of accounts. Copyright 2004, Oxford University Press.

Outsourcing and benchmarking in a rural public hospital: does economic theory provide the complete answer?

The ideology and pronouncements of the Australian Government in introducing 'competitive neutrality' to the public sector has improved efficiency and resource usage. In the health sector, the Human Services Department directed that non-clinical and clinical areas be market tested through benchmarking services against the private sector, with the possibility of outsourcing. These services included car parking, computing, laundry, engineering, cleaning, catering, medical imaging (radiology), pathology, pharmacy, allied health and general practice. Managers, when they choose between outsourcing, and internal servicing and production, would thus ideally base their decision on economic principles. Williamson's transaction cost theory studies the governance mechanisms that can be used to achieve economic efficiency and proposes that the optimal organisation structure is that which minimises transaction costs or the costs of exchange. Williamson proposes that four variables will affect such costs, namely: (i) frequency of exchange; (ii) asset specificity; (iii) environmental uncertainty; and (iv) threat of opportunism. This paper provides evidence from a rural public hospital and examines whether Williamson's transaction cost theory is applicable. Case study research operates within the interpretivism paradigm and is used in this research to uncover why the outsourcing decision was made. Such research aims to study real-life experiences by examining the way people think and act and, in contrast to positivism, allows the interviewer to participate to better understand the details and features of the experiences. In the present research, individual interviews were conducted with managers of the hospital and owners and staff of the vendor organisations using semi- and unstructured questions to ascertain the extent of, and processes used in, outsourcing specific functional areas, and areas that were not outsourced. Pathology, radiology, dental technician services and lawn mowing were outsourced while food services was retained internally. The outsourcing of radiology was due to the hospital being unable (or unwilling) to finance new equipment and the problematical relationship between the existing radiologists, and hospital management and staff. Outsourcing resulted in increased staff morale, upgraded capital equipment and improved services. The outsourcing of pathology and dental technical services aimed to increase labour flexibility, thereby decreasing costs. Additional drivers in pathology were the changing nature of the funding arrangements rendering it profitable for the private sector to move into the provision of pathology and the increasing power of the medical scientists' union. The outsourcing of lawn mowing was simply to reduce costs. Food services was not outsourced because there was a lack of evidence that costs could be reduced. In addition, the existing relationships with food services staff were regarded as important because they had previously made immense changes to work practices, reduced staff numbers and decreased costs. Transaction costs are important when analysing how managers make the outsourcing decision, but the evidence from this case is that not all transaction costs are included in the decision, and that such costs are more complex than can be included in the type of analysis often undertaken by decision-makers. Taking into account Williamson's variables, the research shows that the outsourcing of services did not comply solely with the levels of transaction frequency or the requirement of asset specificity. In addition, opportunistic behaviour was evident on the part of all parties and was used in some cases as a reason for outsourcing, and in others to sway the decision to the manager's predisposed choice. A variety of arrangements were used to reduce environmental uncertainty, such as the transfer of staff to the contractor and the use of long-term contracts. Indeed the case shows that relationships between the hospital, its staff and the vendor are an important consideration that may not always be factored into an analysis that relies solely on transaction costs.

Subcontracting in commercial and residential construction: an empirical investigation

Some twenty years ago Robert Eccles argued for the theoretical existence of the quasifirm, a semi-integrated form of production in the construction industry, following a field study of home building firms in the USA. The study was aimed at substantiating some aspects of Williamson's transaction cost theory. The present work has similar intents, and illustrates the results of two recent field studies of homebuilders and commercial contractors, and the specific features of their subcontracting practice. Given the difficulty of an effective measurement of transaction costs in construction, Williamson's concept of atmosphere is suggested to explain the different approaches observed in subcontracting.

The Handbook of economic sociology

During recent years social scientists have come to reaffirm that understanding almost any facet of social life requires a simultaneous understanding of how economic institutions work and how they are influenced by values and norms. Sociology, and especially economic sociology, is well equipped to be of assistance in this endeavor. Neil Smelser and Richard Swedberg bring together leading sociologists, economists, and political scientists in The Handbook of Economic Sociology, the first comprehensive view of this vital and growing field. This excellent volume is a compilation of some of the best writing in this field over the past decade, including basic works like Oliver Williamson's transaction cost theory of the firm, and [is] a helpful comparison of economic sociology to mainstream economics. —Francis Fukuyama, Foreign Affairs This is the first comprehensive theoretical and empirical account of the burgeoning field of economic sociology. The scholarship is consistently strong. . .. The book will be greeted warmly and read by serious scholars throughout the social sciences. —Robert K. Merton This is a bold, ambitious, almost daunting project. ... It will surely become the standard reference book for the field—the sort of text every scholar will have to know-, consult, and cite. —Viviana Zelizer

Internal versus external search: A research note on transaction cost theory and human resource practices

This research note uses Williamson's transaction cost theory to understand why organizations use certain search strategies to fill particular positions. The empirical analysis focuses on a large multistate banking institution's attempts to fill approximately 575 openings (ranging across roughly 130 job titles) originating between November 1987 and February 1988. In support of the transaction cost approach, reliance upon internal searches are promoted by asset specificity or task idiosyncrasies. However, the blending of internal and external search strategies best characterizes the recruitment process. Internal searches are augmented with specific external recruitment based on the conditions confronting the firm.