I am not denying that transactions are costly. Or there are other costs
associated with different institutions of allocation, including the market. What
I am objecting to is logic of this sort.
Transactions costs imply firms
Therefore firms imply transactions costs.
How do we measure transactions cost? Why do we assume that what exists is
optimal? And any number of other questions that would have to be answered before
this becomes even a useful hypothesis.
By the way Carrol, I don't think that this is the same problem that you indicate
in psychology. Classification is a useful prescientific exercise. But
substitution a name for an explanation is of no intellectual significance. It
remains a mystery.
Rod
Nathan Newman wrote:
>
>
> But maintaining control over employees is a transaction cost under the
> Coasian theory and its modern elaborations. It's usually called "monitoring
> costs" or preventing "opportunism" (i.e. workers doing what makes their
> lives bearable rather than what they are told to do). Oliver Williamson is
> the strongest elaboration on this theme in regard to workers and employers,
> but the key issue of employee control or other power relations pervades
> transaction cost analysis.
>
> One reason I like transaction cost analysis is that it gives a very specific
> set of analytic tools to discuss power within the framework of economic
> analysis. Conservatives use it for their purposes, but it is quite possible
> (and has been used) to argue for quite different arguments of why workers
> inability to absorb risk and employers greater ability to engage in
> opportunism gives them disproportionate power to enforce the bargains they
> wish. Transaction cost analysis demystifies "freely made contracts" by
> making clear why some actors have no real contractual choice in the matter
> once certain sunk investments are made -- firm-specific skills in the case
> of workers as one example.
>
> The competing uses of market versus authority relationships and the role of
> transaction costs (or various names given to it and its relations) has been
> a fruitful area of analysis ranging from left-leaning "New
> Institutionalists" in economic sociology to law and economics types in legal
> research. It has always struck me as a much more convincing analysis than
> neoclassical simulation of markets in all sorts of situations where nothing
> that resembles a market is operating.
>
> -- Nathan Newman
--
Rod Hay
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The History of Economic Thought Archive
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