Edited by Adrian Wilkinson, Jimmy Donaghey, Tony Dundon and Richard B. Freeman
Chapter 4: Employee voice and the transaction cost economics project
Transaction costs are, in Arrow's memorable term, the costs of running the economic system (1974: 48). To use Williamson's simple analogy, they are analogous to friction in physical systems (1985: 19). In many forms of positive, mathematical economics, they do not exist, just as frictions are assumed away in the abstract modelling of physical systems. Transaction costs are subversive of pure market models because, by definition, they imply something is not working or that there is a cost (over and above that which is determined by supply-demand conditions) involved in making it work. Voice is at root a transaction cost concept. Markets should work by exit; if consumers or employees are not getting what they want, they should switch supplier or employer. Voice is the obverse of switching. The existence of voice is premised on the empirical observation that people often try to sort out their problems rather than simply finding a better option somewhere else. For Hirschman (1970), there are potentially a large number of such situations in both consumer and labour markets. Moreover, he sees collective voice as more effective than individual voice; but collective voice is difficult to organize, since there are collective action problems. It is not just a matter of what is to be done but a matter of who will do it.
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