Williamson 2002 the Theory of the Firm as Governance Stru
The Theory of the Firm as Governance Structure: From Choice to Contract
Oliver E. Williamson
Oliver E. Williamson is Edgar F. Kaiser Professor of Business Administration, Professor of Economics, and Professor of Law at the University of California, Berkeley, California. His email address is . The helpful advice of Timothy Taylor and Michael Waldman for revising this manuscript is gratefully acknowledged.
January 2002
2 The propositions that organization matters and is susceptible to analysis were long greeted by skepticism by economists. To be sure, there were conspicuous exceptions: Alfred Marshall in Industry and Trade (1932), Joseph Schumpeter in Capitalism, Socialism, and Democracy (1942), Friedrich Hayek (1945) on knowledge. Both institutional economists (Thorstein Veblen (1904), John R. Commons (1934), and Ronald Coase (1937)) and organization theorists (Robert Michels (1915), Chester Barnard (1938), Herbert Simon (1947), James March (March and Simon, 1958) and Richard Scott (1992)) also made the case that organization deserves greater prominence. One reason why this message took a long time to register is that it is much easier to say that organization matters than it is to show how and why.1 The prevalence of the science of choice approach to economics has also been an obstacle. As developed herein, the lessons of organization theory for economics are both different and more consequential when examined through the lens of contract. This paper examines economic organization from a science of contract perspective, with special emphasis on the theory of the firm.
The Sciences of Choice and Contract Economics throughout the 20th century has been developed predominantly as a science of choice. As Lionel Robbins famously put it in his book, The Nature and Significance of Economic Science (1932, p. 16), “Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.” Choice has
Oliver E. Williamson
Oliver E. Williamson is Edgar F. Kaiser Professor of Business Administration, Professor of Economics, and Professor of Law at the University of California, Berkeley, California. His email address is . The helpful advice of Timothy Taylor and Michael Waldman for revising this manuscript is gratefully acknowledged.
January 2002
2 The propositions that organization matters and is susceptible to analysis were long greeted by skepticism by economists. To be sure, there were conspicuous exceptions: Alfred Marshall in Industry and Trade (1932), Joseph Schumpeter in Capitalism, Socialism, and Democracy (1942), Friedrich Hayek (1945) on knowledge. Both institutional economists (Thorstein Veblen (1904), John R. Commons (1934), and Ronald Coase (1937)) and organization theorists (Robert Michels (1915), Chester Barnard (1938), Herbert Simon (1947), James March (March and Simon, 1958) and Richard Scott (1992)) also made the case that organization deserves greater prominence. One reason why this message took a long time to register is that it is much easier to say that organization matters than it is to show how and why.1 The prevalence of the science of choice approach to economics has also been an obstacle. As developed herein, the lessons of organization theory for economics are both different and more consequential when examined through the lens of contract. This paper examines economic organization from a science of contract perspective, with special emphasis on the theory of the firm.
The Sciences of Choice and Contract Economics throughout the 20th century has been developed predominantly as a science of choice. As Lionel Robbins famously put it in his book, The Nature and Significance of Economic Science (1932, p. 16), “Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.” Choice has
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