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Conventions and Structures in Economic Organization

Markets, Networks and Hierarchies

Edited by Olivier Favereau and Emmanuel Lazega

This book contributes to the current rapprochement between economics and sociology. It examines the fact that individuals use rules and interdependencies to forward their own interests, while living in social environments where everyone does the same. The authors argue that to construct durable organizations and viable markets, they need to be able to handle both. However, thus far, economists and sociologists have not been able to reconcile the relationship between these two types of constraints on economic activity.
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Chapter 4: Transaction cost economics and governance structures: applications, developments and perspectives

Markets, Networks and Hierarchies

Didier Chabaud and Stéphane Saussier


Didier Chabaud and Stéphane Saussier INTRODUCTION It is now widely recognized that transaction cost economics is an ‘empirical success story’ (Williamson, 1996). Hundreds of empirical tests exist and often corroborate propositions of this theoretical framework (Klein and Shelanski, 1995; Crocker and Masten, 1996; Masten and Saussier, 2000), especially concerning the make or buy decision (Coeurderoy and Quélin, 1997). Even if progress is still to be made (Williamson, 1993; Masten, 1995; Masten and Saussier, 2000), it is not well known that recent developments allow the theory to give good explanations of complementary phenomena such as inter-firm contractual relationships or internal organization. In this chapter we would like to illustrate what the weaknesses and recent improvements are of the theory, focusing most especially on the analysis of inter-firm agreements and intra-firm organization. After a brief presentation of transaction cost economics’ basics, we come back to the main developments concerning inter-firm relationships. We show that empirical tests provide a strong support for the theory’s propositions. Furthermore, we emphasize the needed improvements that still have to be done and we give insights and several examples of recent studies. Lastly, we analyse what the explanatory power of the theory is concerning internal organization. Results are more mitigated because the theory is only beginning to investigate this question in depth. A brief conclusion closes the chapter. A BRIEF PRESENTATION Here we do not provide an exhaustive presentation of what transaction cost economics is (see Williamson, 1996, on this point). We only want to briefly...

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