The Mechanisms of Governance [Hardcover]

Oliver E. Williamson (Author)

Book Description

Publication Date: February 29, 1996 | ISBN-10: 0195078241 | ISBN-13: 978-0195078244 | Edition: First Edition

This book brings together in one place the work of one of our most respected economic theorists, on a field in which he has played a large part in originating: the New Institutional Economics. Transaction cost economics, which studies the governance of contractual relations, is the branch of the New Institutional Economics with which Oliver Williamson is especially associated.

Transaction cost economics takes issue with one of the fundamental building blocks in microeconomics: the theory of the firm. Whereas orthodox economics describes the firm in technological terms, as a production function, transaction cost economics describes the firm in organizational terms, as a governance structure. Alternative feasible forms of organization--firms, markets, hybrids, bureaus--are examined comparatively. The analytical action resides in the details of transactions and the mechanisms of governance.

Transaction cost economics has had a pervasive influence on current economic thought about how and why institutions function as they do, and it has become a practical framework for research in organizations by representatives of a variety of disciplines. Through a transaction cost analysis, The Mechanisms of Governance shows how and why simple contracts give way to complex contracts and internal organization as the hazards of contracting build up. That complicates the study of economic organization, but a richer and more relevant theory of organization is the result. Many testable implications and lessons for public policy accrue to this framework. Applications of both kinds are numerous and growing.

Written by one of the leading economic theorists of our time, The Mechanisms of Governance is sure to be an important work for years to come. It will be of interest to scholars and students of economics, organization, management, and law.

Editorial Reviews

Review

"The Mechanisms of Governance is sure to be of interest to all who study economics, organization, management, and law. Moreover, it contains new and useful insights for any manager who wants to stay on the leading edge of economic theory."--Cal Business

"...a work of scholarship written for posterity by one of the leading social scientists of our time. [It] should achieve the status of a classic text quickly... [Williamson] provides a conceptual framework simple enough to be used and yet exact and complex enough to accommodate continuing insights into the workings of organizations."--Academy of Management Review

"Even those who have read most of it could benefit from reading it again as a whole. Williamson's accomplishments are many. He is preeminent in his field. One could almost say that he is the field."--Journal of Economic Issues

"The Mechanisms of Governance is...a valuable summing up of both an especially influential body of work and the career of a great economist."--Business History Review

About the Author

Oliver E. Williamson is the Edgar F. Kaiser Professor of Business, Professor of Economics, and Professor of Law at the University of California at Berkeley. He is the author of numerous works in which law, economics, and organization are joined.

Product Details

• Hardcover: 448 pages
• Publisher: Oxford University Press, USA; First Edition edition (February 29, 1996)
• Language: English
• ISBN-10: 0195078241
• ISBN-13: 978-0195078244
• Product Dimensions: 9.5 x 6.4 x 1.3 inches
• Shipping Weight: 1.7 pounds (View shipping rates and policies)
• Average Customer Review: 2.8 out of 5 stars  See all reviews (4 customer reviews)
• Amazon Best Sellers Rank: #2,855,308 in Books (See Top 100 in Books)

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Customer Reviews

Most Helpful Customer Reviews

17 of 19 people found the following review helpful:

4.0 out of 5 stars A classic of transaction cost economics, April 25, 2001

By 

Stephen M. Bainbridge "www.professorbainbridg... (Los Angeles, CA USA) - See all my reviews
(REAL NAME)   

This review is from: The Mechanisms of Governance (Paperback)

Oliver Williamson is one of the seminal figures of New Institutional Economics. "The Mechanisms of Governance" is the third book in which Williamson has collected his principal writings, while working them into a coherent whole. The earlier volumes, "Markets and Hierarchies" and "The Economic Institutions of Capitalism," are justly regarded as the foundational texts of the transaction costs economics school of institutional economics. "The Mechanisms of Governance" seems certain to join them as essentials for any legally literate economist or economically literate lawyer.

Transaction cost economics focuses on institutions, in contrast to neoclassical economics' focus on individuals, providing simple models that help us understand how institutions function and how they will respond to regulation. We can analogize transaction costs to friction: they are dead weight losses that reduce efficiency. They make transactions more costly and less likely to occur. Among the most important sources of transaction costs is the limited cognitive power of human decisionmakers. Unlike the Chicago School of law and economics, which posits the traditional concept of rational choice, Williamson asserts that rationality is bounded. Put another way, he assumes that economic actors seek to maximize their expected utility, but also that the limitations of human cognition often result in decisions that fail to maximize utility. Decisionmakers inherently have limited memories, computational skills, and other mental tools, which in turn limit their ability to gather and process information. As he demonstrates, this phenomenon, known as bounded rationality, has pervasive implications for understanding how institutions work.

Accordingly, Williamson's approach provides an analytical framework that is useful not only to economists, but also to lawyers and policymakers. Among other subjects, Williamson tackles such subjects as vertical integration, corporate governance, and industrial organization.

In sum, highly recommended. If so, you might ask, of course, why did I subtract one star? Mainly because of Williamson's unfortunate writing style. Although "The Mechanisms of Governance" is largely free of the recreational mathematics that plagues much modern economic writing, which is useful for those of us who flunked Differential Equations, it is very jargon-intensive. Worse yet, much of the jargon is self-created. All of which makes reading Williamson an effort-intensive project. Usually the cost-benefit analysis nevertheless comes out in his favor, but sometimes one puzzles out the jargon to find a rather obvious point that could have been conveyed far more simply.

3 of 4 people found the following review helpful:

5.0 out of 5 stars Excellent on Transaction Cost Economics, September 22, 2004

By 

M. Mortazavi (San Jose, California) - See all my reviews
(REAL NAME)   

This review is from: The Mechanisms of Governance (Paperback)

This is an excellent book on transaction cost economics. Some familiarity with transaction cost economics is assumed. It contains, essentially, a selection set of essays and additional material from Williamson, about whose work I've also written on elsewhere, on my weblog MortazaviBlog. It is a great complement and development over the earlier book of essays from Williamson: The Economic Institutions of Capitalism.

5 of 13 people found the following review helpful:

1.0 out of 5 stars Where Was The Editor?, January 1, 2004

By 

John (Calgary, Alberta Canada) - See all my reviews

This review is from: The Mechanisms of Governance (Hardcover)

Williamson might be a leading figure in his field, but he can't seem to organize ideas to save his life. It's almost as though he wrote the book in one stream of consciousness, and no one ever went back to check that things flowed, language made sense, etc. One of the most painful books I've ever read.