Edited by Peter G. Klein and Michael E. Sykuta
Chapter 13: The Transaction as the Unit of Analysis
Nicholas Argyres Transaction cost economics (TCE) is so named because it analyzes the costs of different kinds of ‘transactions’. Indeed, one of the important departures TCE makes from neoclassical economics is to take the ‘transaction’ as its unit of analysis (Williamson, 1985). In this chapter, I discuss how the transaction is a different unit of analysis than that of neoclassical economics, and then discuss some of the advantages and limitations of analyzing economic activity at the level of the transaction. Neoclassical economics is primarily the study of economic choices by individual consumers or firms. It is concerned, for example, with how the price system guides consumer and firm choices about how much to produce and consume of various goods, with the implications of these choices for the allocation of resources in particular markets, and with overall social welfare. In models of general equilibrium, consumers and firms are assumed to enjoy many alternate trading opportunities for inputs and outputs, and to act autonomously in choosing which of these opportunities to pursue. Trade is generally treated as involving discrete, well-defined goods (‘spot market’ trades), or promises of future delivery of such goods (‘futures market’ trades). This focus on the individual decision-making unit arguably led neoclassical economics to neglect an important feature of economic activity; namely, trading relationships between two economic actors, such as firms, in which the terms of trade are not fully defined, and where the value of continuing the relationship is high because both sides’ outside trading options are much...
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