Design Rules Volume 2: Chapter 3—Transaction Free Zones

Abstract

In Chapter 2 we saw that the most economical locations for transactions in a task network are the so-called thin crossing points—places where transfers are easy to define, count and pay for. However, in many places in the task network, transfers of material, energy, and information are so dense and complex that the costs of treating each one as a transaction would be prohibitive. Such areas can become transaction free zones.

The purpose of this chapter is to build a theory of transaction free zones within a task network. I first consider how transaction free zones are related to the economic view that a firm is a “nexus of contracts.” I then explain how transaction free zones are created and governed. I describe three types of transaction free zones: (1) corporations in which all decision rights flow from a single, central authority; (2) commons organizations which govern through consensual rule-making and monitoring; and (3) collaborative communities with open boundaries which govern through consensus and shared norms.

Keywords: Technology, Organizations, Modularity

JEL Classification: L1, L2, O3