Transaction-Cost Economics: The Governance of Contractual Relations Author(s): Oliver E. Williamson Source: Journal of Law and Economics, Vol. 22, No. 2 (Oct., 1979), pp. 233-261 Published by: The University of Chicago Press for The Booth School of Business of the University of Chicago and The University of Chicago Law School Stable URL: http://www.jstor.org/stable/725118 . Accessed: 22/04/2013 10:16 Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp
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TRANSACTION-COST ECONOMICS: THE GOVERNANCE OF CONTRACTUAL RELATIONS* OLIVER E. WILLIAMSON University of Pennsylvania
THE new institutional economics is preoccupied with the origins, incidence, and ramifications of transaction costs. Indeed, if transaction costs are negligible, the organization of economic activity is irrelevant, since any advantages one mode of organization appears to hold over another will simply be eliminated by costless contracting. But despite the growing realization that transaction costs are central to the study of economics,' skeptics remain. Stanley Fischer's complaint is typical: "Transaction costs have a well-deserved bad name as a theoretical device ... [partly] because there is a suspicion that almost anything can be rationalized by invoking suitably specified transaction costs."2 Put differently, there are too many degrees of freedom; the concept wants for definition. * This paper has benefited from support from the Center for Advanced Study in the Behavioral Sciences, the Guggenheim Foundation, and the National Science Foundation. Helpful comments by Yoram Ben-Porath, Richard Nelson, Douglass North, Thomas Palay, Joseph Sax, David Teece, and Peter Temin and from the participants at seminars at the Yale Law School and the Institute for Advanced Study at Princeton are gratefully acknowledged. The paper was rewritten to advantage after reading Ben-Porath's discussion paper, the F-Connection: Family, Friends, and Firms and the Organization of Exchange, and Temin's discussion paper, Modes of Economic Behavior: Variations on Themes of J. R. Hicks and Herbert Simon. 1 Ronald Coase has forcefully argued the importance of transaction costs at twenty-year intervals. See R. H. Coase, The Nature of the Firm, 4 Economica 386 (n.s. 1937), reprinted in Readings in Price Theory 331 (George J. Stigler & Kenneth E. Boulding eds. 1952) and R. H. Coase, The Problem of Social Cost, 3 J. Law & Econ. 1 (1960). Much of my own work has been "preoccupied"with transaction costs during the past decade. See especially Oliver E. Williamson, Markets and Hierarchies: Analysis and Antitrust Implications (1975). Other works in which transaction costs are featured include: Guido Calabresi, Transaction Costs, Resource Allocation, and Liability Rules: A Comment, 11 J. Law & Econ. 67 (1968); Victor P. Goldberg, Regulation and Administered Contracts, 7 Bell J. Econ. 426 (1976); Benjamin Klein, Robert G. Crawford, and Armen A. Alchian, Vertical Integration, Appropriable Rents, and the Competitive...