Williamson Miscellany

13 October 2009 at 9:25 am 10 comments

| 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!

Entry filed under: - Klein -, New Institutional Economics, People, Theory of the Firm.

Wiliamson Linking with Guile Hoisted from the Comments: Hoopes on Williamson

10 Comments Add your own

  • […] Boettke, Lynne Kiesling, Peter Klein, Vernon Smith, David Henderson, Don Boudreaux, and other Hayekian economists are all applauding the […]

  • 2. ßadaßing  |  13 October 2009 at 11:02 am

    I think in general that the formal-verbal dichotomy is misplaced, misleading and simply unnecessary. Verbal analysis can be sharp and clear and “economics” just as formal analysis can lack economic thinking because of too much emphasis on math.

  • 3. Mais sobre o Nobel da Economia (4) « O Insurgente  |  13 October 2009 at 11:12 am

    […] sobre o Nobel da Economia (4) Arquivado em: Economia, Teoria — Miguel @ 17:12 Peter Klein sobre Oliver Williamson (Organisations & Markets) Briefly, my own (admittedly biased) take is […]

  • 4. Peter Klein  |  13 October 2009 at 11:14 am

    @ßadaßing: I agree, see


  • […] on transaction cost economics, with an introduction by Oliver Williamson. (And, big congrats to O&M’s Peter Klein for having his article cited in the Nobel Committee’s scientific […]

  • 6. David G. Hoopes  |  13 October 2009 at 2:56 pm

    So, w’re leaving the serious discussion to our goody two-shoes organizations twin? Was Will Mitchell a Williamson student? No one has said anything about Teece. Teece’s early JEBO articles did a great job talking about economies of scope and transaction cost influences on strategy.

    Unmentioned yet, there has been some contentious discussion about the implications of TC economics on strategy and organization. Many including Connor and Prahalad consider the implications of TC to lead to bad management and bad strategy. However, our very own Steve Postrel wrote a great paper, “Islands of Shared Knowledge” that (esp in an earlier version) does a great job of comparing and contrasting the RBV and TC as theories of the firm.

    Harold Demsetz weighed in on this earlier in his, “Theory of the Firm Revisited” (which is one of my favorite all time papers). Harold argues that firms would exist without governance problems. Steve has tried to get Harold to see the light (i’m not sure i do) but to no avail.

    Of course, CERTAIN org theorists, whose names i do not mention think that Williamson’s logic, as does all competition-based economic theory, leads to evil and terrible results: unethical business students who become tomorrow’s headlines.

    I’m very happy to see Williamson win. His influence on strategy and organization is immense. And, at this point, I don’t see any theory of the competitive firm can reasonably leave him out. I will admit, in terms of competitive heterogeneity and competitive advantage I don’t think governance is anywhere near as important as productive capabilities. BUT, capabilities literature still has a lot of work to do to be specified as exactly as TCE.

  • 7. ysk  |  14 October 2009 at 8:14 am

    “Proving Williamson wrong” or showing that his theory of the firm misses important features of firms (I fall in this camp) has kept many people busy for the last 25 years! This shows that his award is very well deserved.

  • […] Ranson, Taking Hayek Seriously, October 13: Peter Boettke, Lynne Kiesling, Peter Klein, Vernon Smith, David Henderson, Don Boudreaux, and other Hayekian economists are all applauding the […]

  • […] Boettke, Lynne Kiesling, Peter Klein, Vernon Smith, David Henderson, Don Boudreaux, and other Hayekian economists are all applauding the […]

  • […] Boettke, Lynne Kiesling, Peter Klein, Vernon Smith, David Henderson, Don Boudreaux, and other Hayekian economists are all applauding the […]

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