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The Logic Of Economic Organization

O. Williamson
Published 1988 · Economics

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The transaction cost logic of economic organization had its origins in a tautology, which Ronald Coase wryly defines as "a proposition that is clearly right" (1988:00). The basic insight, first advanced by Coase in his classic 1937 article (1952:341) and restated for this conference, is this: "A firm . . . [has] a role to play in the economic system if ... transactions [can] be organized within the firm at less cost than if the same transactions were carried out through the market. The limit to the size of the firm ... [is reached] when the costs of organizing additional transactions within the firm [exceed] the costs of carrying out the same transactions through the market" (1988). Albeit "clearly right," the argument is also subject to the objection that "almost anything can be rationalized by invoking suitably specified transaction costs" (Fisher: 322, n. 5). That the state of transaction cost economics in 1972 was approximately where Coase had left it in 19371 is largely attributable to the failure, for thirty-five years, to operationalize this important concept. That this flat trajectory has been supplanted by exponential growth during the past fifteen
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