Economic Foundations of Strategy provides not only the essential basic tenets of strategy, it also shows the inter-relationships of five major theories of the firm: the behavioral theory; transaction costs theory; property rights theory; agency theory; and dynamic resource-based theory.  Even though technological, organizational and institutional change advances breathlessly, the theories of the firm provided in this research book are durable principles that have stood, and the author maintains will continue to stand, the test of time.  Economic Foundations of Strategy emphasizes the complementarities among these five theories of organization, and the potential for integrating these theories in the evolving science of organization. Applications of these theories to business practice are emphasized throughout the book.  

Transaction Costs Theory

Transaction costs theory

The origin of transaction costs theory is Coase's (1937) classic journal article on the nature of the firm. However, it took until the mid-1970s for transaction costs theory to become influential in both research and public policy following the works of Arrow (1974) and especially Williamson (1971, 1979). This chapter covers Arrow (1974), Coase (1988), and Williamson's three transaction costs books (1975, 1985, 1996).

Arrow's (1974) book, The Limits of Organization, was originally given as the Fels Lecture for 1970–1971 to the Fels Center of Government at the University of Pennsylvania. This lucidly written book focuses on at least four major themes: (1) the concept of rationality (individual and social), (2) information economics, (3) the agenda of organizations, and (4) the ...

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