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 25: Critiques of Transaction Cost Economics: An Overview

Nicolai J. Foss and Peter G. Klein


Nicolai J. Foss and Peter G. Klein Ever since its emergence in the early 1970s (for example, Williamson 1971; Alchian and Demsetz, 1972; Furubotn and Pejovich, 1972; Arrow, 1974; Jensen and Meckling, 1976), the new institutional economics (NIE) has been the subject of intense debate. As the most important constituent body of thought in the NIE, transaction cost economics (TCE) is no exception. Much of the debate on TCE has been ‘internal’, in the sense that it has been conducted between scholars generally sympathetic to the approach (for example, Hart, 1995; Kreps, 1996; Furubotn, 2002; MacLeod, 2002). However, there also is a large set of ‘external’ critiques, arising from sociologists, heterodox economists, and management scholars. For instance, early critics argued that TCE ignored the role of differential capabilities in structuring economic organization (Richardson, 1972); neglected power relations (Perrow, 1986), trust, and other forms of social embeddedness (Granovetter, 1985); and overlooked evolutionary considerations, including Knightian uncertainty and market processes (Langlois, 1984). Such critiques have been echoed and refined in numerous more contemporary contributions, and criticizing TCE remains a thriving industry. The incumbents are mainly sociologists (Freeland, 2002; Buskens, et al., 2003) and non-mainstream economists (Hodgson, 1998; Loasby, 1999; Dosi and Marengo, 2000), but new entrants are increasingly recruited from the ranks of management scholars (Kogut and Zander, 1992; Conner and Prahalad, 1996; Ghoshal and Moran, 1996). This chapter offers a brief review and assessment of this critical literature. By no means do we claim to be comprehensive; unavoidably many authors, papers,...

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