The Elgar Companion to Transaction Cost Economics
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The Elgar Companion to Transaction Cost Economics

Edited by Peter G. Klein and Michael E. Sykuta

Since its emergence in the 1970s, transaction cost economics (TCE) has become a leading approach in the research on contracts, firm organization and strategy, antitrust, marketing, inter-firm collaboration and entrepreneurship. With contributions by leading scholars in economics, law and business administration – including Oliver E. Williamson, recipient of the 2009 Nobel Prize in economics for his development of the transaction cost approach – this volume reviews the latest developments in TCE and applies them to contemporary theoretical and empirical problems.
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Chapter 9: Herbert Simon

Saras Sarasvathy


Saras Sarasvathy In a series of published and unpublished exchanges toward the end of the twentieth century, Herbert Simon and Oliver Williamson argued about the relationship between transaction cost economics (TCE) and behavioural economics. The exchange derived from personal biography as well as intellectual history and attested to differences not only of ideas but of world views. Augier and March (2001) provide one explanation for the disagreement in terms of a family quarrel about the degree to which one ought to assume unbounded rationality, opportunism, and conflict in the creation and sustenance of human organizations. Another aspect to the quarrel consists in the fact that Simon was not merely or even primarily an economist or social scientist. He was a Renaissance man, a polymath – deeply interested in how the human mind works and how that coheres with how the universe works. Opportunism, like unbounded rationality and conflict, did not make sense to him as fundamentals of human behaviour either empirically or historically and certainly not in terms of what we know about biological evolution. These concepts also did not make sense to him normatively, as guides for future action, for creatures consciously engaged in ‘designing’ their own environments, nor for scientists studying such creatures – scientists of ‘the artificial’ (Simon, 1996). Concepts such as bounded rationality, docility, and intelligent altruism were more interesting and fundamental to him, even if they were ‘messier’ because (i) they were empirically-based, and (ii) they were necessary to hold together a larger, more general tapestry of...

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