| Peter Klein |
1. I’ve been at the SMS conference, and traveling, and haven’t had a chance to read the vast blogospheric commentary on Williamson (and Ostrom). Those looking for an introduction to Williamson’s work will find good stuff in the forthcoming Elgar Companion to Transaction Cost Economics, including an introduction by Williamson himself, and chapters on core subjects by eminent Williamsoninans.
Briefly, my own (admittedly biased) take is that Williamson is second only to Coase as the key figure in modern organizational economics. Moreover, his work has revolutionized the way economists (and some antitrust lawyers) understand markets. The perfectly competitive general-equilibrium model, Williamson’s work shows, is unrealistic, irrelevant, and a distraction. The task of economists studying firms and markets is to understand the marvelous variety of organizational forms that emerge in competitive markets, virtually none resembling the “firm” of microeconomics textbooks (what Williamson calls the production-function picture of the firm). “Nonstandard” phenomena like vertical integration, vertical contractual restrictions, alliances and joint ventures, long-term supply or distribution agreements, and the like should be celebrated, not condemned. (Williamson is more circumspect, arguing that each form of organization should be evaluated on the merits, case by case — a refreshing contrast to the standard approach in antitrust law, which is to assume that every deviation from perfect competition is “anticompetitive.”)
2. The Nobel Committee’s scientific statement cites one of my papers. How cool is that? Coauthor Howard Shelanski tells me that law professors note on their CVs if one of their articles is cited in a Supreme Court decision. You can be sure I’ll find a way to list this on mine.
3. Steve Levitt notes that Williamson’s work, while well known to older economists, is not that familiar to the younger generation. I think that’s right, within economics departments, at least. The theory of the firm (or, more generally, organizational economics) is a huge field in economics, but its best-known representatives today are Oliver Hart, Jean Tirole, Bob Gibbons, Bengt Holmstrom, Eric Maskin, and other formal theory folks. Indeed, the bulk of the modern economics literature on the firm builds on the Grossman-Hart-Moore model, not Williamson’s own work (or Ben Klein’s, Armen Alchian’s, Harold Demsetz’s, etc.). As Williamson himself has emphasized, the Grossman-Hart-Moore approach, while sharing with Williamson’s TCE an appreciation for contractual incompleteness and asset specificity or relationship-specific investment, is nonetheless a different theory, not simply a formalization of TCE.
However, in the contemporary literature in strategy and organizations, Williamson’s influence is huge. Teppo provides a nice summary. Indeed, while the resource-based view, and its capabilities, knowledge-based, and dynamic capabilities variants, is the dominant perspective on the firm in the strategy field, TCE is a close second. The (new) property-rights perspective of Grossman and Hart plays a very small role in management research. Surely language plays some role here; Williamson’s work is mostly verbal, while the formal models of the incomplete-contracting literature are inaccessible to many management scholars. But that is not the whole story. Williamson’s work is also interdisciplinary, borrowing liberally from law, sociology, organization theory, political science, and elsewhere, and this more eclectic approach fits more naturally with the research tradition in strategy and organization.
4. From one of my PhD students: “I’m not sure if this is a good day or a bad one. Today I’m a grand-advisee of a Nobel laureate, but I also feel like the Nobel Prize was taken away from me. Doesn’t seem like they will award a Prize for proving Williamson wrong for a looooong time.” Ah, the exuberance of youth!