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date: 17 October 2019

Abstract and Keywords

The goal of transaction cost theory (TCT) is to explain which institution will be chosen to govern a given economic interaction. Such interactions can take place within firms (intra-organizational relations) or between firms (inter-organizational relations, or IORs). The TCT literature has looked at IORs as governance mechanisms, i.e. as institutions charged with generating rents from interdependencies between individuals and between organizations. Generating such rents requires informing parties of their capabilities and needs, reducing bargaining, and enforcing the bargains reached. This article sketches the basic approach and assumptions which are subscribed to by all, or nearly all, TCT theorists. It presents a view on the determinants of the choice between different forms of IORs and contrasts them with those of Williamson. It also provides some examples of how TCT has been used to make sense of real world IORs.

Keywords: transaction cost theory, intra-organizational relations, inter-organizational relations, governance mechanisms, organizations

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