The role of transaction costs in the effectiveness of formal institutions and the players involved

Résumé du document

According to rational action theory, economic choices presumed to be free, rational and motivated by personal interest. The rational agent is assumed to take account of available information, probabilities, risk, but also potential costs and benefits of any exchange. However, the functioning of the market basically uncertain over the long-term ends up in distorting economic agents' expectations and rationality, creating opportunism and imposing them transaction costs.

Extraits

[...] This new context called into question the very basis of the traditional practices and theories like vertical to horizontal integration, environmental management and Taylorism. Indeed, some companies have decided to include more horizontal integration in their production. For example, IBM has increased their subcontracting and collaborations with others in line with the new international division of labour. It has thus about two or three times fewer employees than in 1989 with a stronger top line and profitability by covering less sectors of production and using more contracts. [...]

[...] More than words, transaction costs became a concept through Oliver E. Williamson's Transaction Cost Economics (TCE) in the early 1970s[3]. He defined it as “an examination of the comparative costs of planning, adapting, and monitoring task completion under alternative governance structures.” This theory assumes that, because of opportunism and bounded rationality of economic actors, accurate and guaranteed contracts are hard to make so it creates a situation of irreducible risk. Thus these agents may have to look for alternative institutional arrangements to minimize these costs, which is the main goal of TCE. [...]

[...] In this domain, TCE has important implications for evaluating and reforming antitrust and regulatory policies by promoting more horizontal segments of industries historically considered to be natural monopolies including telecommunications, electric power, natural gas transportation, and railroads. For example, in the US, Federal antitrust statutes (Sherman, Clayton, Federal Trade Commission Acts) define broad principles of antitrust policy and two federal enforcement agencies (the Department of Justice and the Federal Trade Commission) share responsibilities for antitrust enforcement. Thus, it illustrates the improvement in law institutions by using the TCE based on postulates of uncertainty and opportunism on the market and in the firm. [...]

[...] To conclude, it is possible to say that the reduction of transaction costs by all the economic, financial and political players is both due and contribute to the effectiveness of formal institutions. It is thus a virtuous circle between minimization of transaction costs and improvement of institutions. Concept of Bounded rationality of Herbert A. Simon used by Oliver E. Williamson Coase's 1937 paper ‘The Nature of the Firm'. p Williamson's article “Transaction cost economics: the governance of contractual relations”. Journal of Law and Economics James E. [...]

[...] Alt, Kenneth A. Shepsle. Perspectives on Positive Political Economy. Institutions and transaction-cost theory of exchange. Douglass C.North. p. [...]