The Mechanisms of Governance

This book brings together in one place the work of one of our mostrespected economic theorists, on a field in which he has played a large part inoriginating: the New Institutional Economics. Transaction cost economics, whichstudies the governance of contractual relations, is the branch of the NewInstitutional Economics with which Oliver Williamson is especially associated.Transaction cost economics takes issue with one of the fundamental buildingblocks in microeconomics: the theory of the firm. Whereas orthodox economicsdescribes the firm in technological terms, as a production function, transactioncost economics describes the firm in organizational terms, as a governancestructure. Alternative feasible forms of organization--firms, markets, hybrids,bureaus--are examined comparatively. The analytical action resides in thedetails of transactions and the mechanisms of governance.Transaction cost economics has had a pervasive influence on current economicthought about how and why institutions function as they do, and it has become apractical framework for research in organizations by representatives of avariety of disciplines. Through a transaction cost analysis, The Mechanisms ofGovernance shows how and why simple contracts give way to complex contracts andinternal organization as the hazards of contracting build up. That complicatesthe study of economic organization, but a richer and more relevant theory oforganization is the result. Many testable implications and lessons for publicpolicy accrue to this framework. Applications of both kinds are numerous andgrowing.Written by one of the leading economic theorists of our time, The Mechanisms ofGovernance is sure to be an important work for years to come. It will be ofinterest to scholars and students of economics, organization, management, andlaw.

Oliver E. Williamson is the Edgar F. Kaiser Professor of Business; Professor of Economics; and Professor of Law at the University of California at Berkeley.