According to Williamson, “A transaction occurs when a good or service is transferred across a technologically separable interface. One stage of activity terminates and another begins.” Transaction costs appear whenever there is “friction” at the point of interface. In other words, Transaction Cost Economics focuses on the organization of transactions that occur whenever a good or service is transferred from a provider to a user across a technologically separable interface. When transactions occur within an organization, the transaction costs can include managing and monitoring personnel and procuring inputs and capital equipment. The transaction costs of buying the same good or service from an external provider can include the costs of source
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He sees three forms of rationality.
• Maximizing rationality- the rationality of classical economics, with perfect information and pure knowledge of all viable options.
• Bounded rationality (the basis or transactional theory) assumes that most transactions occur with limited information (though actors try to be rational). In this situation people try to use problem solving and decision-making processes to negotiate a transaction and monitor and adapting the transaction over time.
• Organic rationality is more concerned with evolutionary trends where ignorance may even be better than knowledge in planning toward ends.
Williamson also sees three levels of self-interest.
• Opportunism dons people will do whatever it takes to maximize their interests -- lie, cheat, steal, etc. Deception and misinformation are common tactics. It’s a worrying source of behavioural uncertainty in economic transactions.
• Simple self-interest seeking assumes people will enter transactions without guile and fully disclose all information. Classical economics often assumes this …show more content…
These assets are developed in the context of specific transactions, with the opportunity cost being lower if the transaction type is later eliminated. Thus, the continuity of a transaction is highly valued, resulting in contractual and organizational safeguards are needed to ensure continuity.
Uncertainty- Transaction cost theory assumes that governance structures differ in their capabilities to respond effectively to disturbances. Uncertainty, bounded rationality, and opportunism (also known as behavioural uncertainty) cause many problems in properly negotiating and maintaining contractual commitments. Combined with asset specificity, it becomes even more important for contracting parties to "work things out (via governance structures and
He sees three forms of rationality.
• Maximizing rationality- the rationality of classical economics, with perfect information and pure knowledge of all viable options.
• Bounded rationality (the basis or transactional theory) assumes that most transactions occur with limited information (though actors try to be rational). In this situation people try to use problem solving and decision-making processes to negotiate a transaction and monitor and adapting the transaction over time.
• Organic rationality is more concerned with evolutionary trends where ignorance may even be better than knowledge in planning toward ends.
Williamson also sees three levels of self-interest.
• Opportunism dons people will do whatever it takes to maximize their interests -- lie, cheat, steal, etc. Deception and misinformation are common tactics. It’s a worrying source of behavioural uncertainty in economic transactions.
• Simple self-interest seeking assumes people will enter transactions without guile and fully disclose all information. Classical economics often assumes this …show more content…
These assets are developed in the context of specific transactions, with the opportunity cost being lower if the transaction type is later eliminated. Thus, the continuity of a transaction is highly valued, resulting in contractual and organizational safeguards are needed to ensure continuity.
Uncertainty- Transaction cost theory assumes that governance structures differ in their capabilities to respond effectively to disturbances. Uncertainty, bounded rationality, and opportunism (also known as behavioural uncertainty) cause many problems in properly negotiating and maintaining contractual commitments. Combined with asset specificity, it becomes even more important for contracting parties to "work things out (via governance structures and