Recent Developments in Transaction Cost Economics

Abstract

This working paper provides a summary on transaction cost economics (TCE) and recent developments thereof. After an introductory discussion of TCE’s role within the field of New Institutional Economics, a critical analysis of the contribution of the existing body of empirical literature is conducted. In recent years, researchers have continued to develop and extend TCE. Williamson (1991b) introduces the shift parameter framework which investigates how the optimal choice of governance changes in response to dynamics in the institutional environment. Nickerson (1997) develops the positioning-economizing perspective arguing that decisions regarding market position, resource investments, and governance mode are interdependent and determined simultaneously. A number of authors came up with an increasing interest in relational institutional arrangements arguing that TCE may overstate the desirability of complex long-term contracts and vertical integration in exchange settings where a substantial hold-up potential is present.

Keywords: Transaction cost economics, discriminative alignment, theories of the firm, shift parameter framework, positioning-economizing perspective, structural form model, empirical literature

JEL Classification: D23, L22