Implications for Strategy and Industrial Change
Edited by Ken Green, Marcela Miozzo and Paul Dewick
Chapter 2: The Economics of Governance: The Role of Localized Knowledge in the Interdependence Among Transaction, Coordination and Production
Cristiano Antonelli 1. INTRODUCTION Transaction costs economics has made possible signiﬁcant progress in the economic analysis of the ﬁrm. The continual process of implementation and redeﬁnition of the original framework put forward by Ronald Coase and Oliver Williamson and the contributions of the resource-based theory of the ﬁrm have paved the way to a broader approach: the economics of governance. In transaction costs economics the ﬁrm is viewed as a bundle of activities selected according to the relative costs of transaction and coordination. Internalization is decided when the costs of using the markets are higher than the costs of coordinating production internally. The basic choice is whether to buy a given component or other intermediary inputs or to make them. The decision is taken in a static context where coordination and transaction costs are given and depend upon exogenous factors. The role of competence and knowledge is not considered. An alternative view of the ﬁrm has been elaborated by the resource-based theory of the ﬁrm. The resource-based theory of the ﬁrm has emerged as a consistent body of literature centred upon the key role of the ﬁrm in the accumulation and generation of technological knowledge and competence and its transformation into technological and organizational innovations (Foss, 1997; Penrose, 1959). In the resource-based theory of the ﬁrm little attention is paid to understanding the role of coordination costs in limiting the size of the ﬁrm and to the constraints and opportunities of the marketplace as an alternative mechanism of...
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