The Economic Institutions of Capitalism (Paperback)

by Oliver E. Williamson (Author) "Firms, markets, and relational contracting are important economic institutions..." (more)
Key Phrases: alternative work modes, nonstandard contracting practices, organization theory specialists, United States, General Motors, Peer Group (more...)

Editorial Reviews

Review
The Academy of Management Review Oliver Williamson has written the most important book on the corporation since Berle and Means' The Modern Corporation and Private Property. -- Review

Alfred D. Chandler, Jr. Harvard Business School For a historian concerned with the evolution of modern institutions, this is the most valuable book written by an economist since those of Joseph Schumpeter.

Kenneth J. Arrow Nobel Laureate in Economics [Williamson] works on a much broader canvas than before and demonstrates the power of his approach in understanding such elusive phenomena as contract relations, vertical integration, labor unions, and antitrust law.

Paul L. Joskow, Massachusetts Institute of Technology An extraordinarily impressive achievement and must reading for all serious students of law, economics, and organization...The Economic Institutions of Capitalism synthesizes Oliver Williamson's extensive work on these subjects with related work of other scholars in a comprehensive and stimulating presentation of the theory and applications of a new institutional economics that is changing the way we think about many issues in law, economics, and organization. --This text refers to an out of print or unavailable edition of this title.

Review
Alfred D. Chandler, Jr. Harvard Business School For a historian concerned with the evolution of modern institutions, this is the most valuable book written by an economist since those of Joseph Schumpeter.

Kenneth J. Arrow Nobel Laureate in Economics [Williamson] works on a much broader canvas than before and demonstrates the power of his approach in understanding such elusive phenomena as contract relations, vertical integration, labor unions, and antitrust law.

Paul L. Joskow, Massachusetts Institute of Technology An extraordinarily impressive achievement and must reading for all serious students of law, economics, and organization...The Economic Institutions of Capitalism synthesizes Oliver Williamson's extensive work on these subjects with related work of other scholars in a comprehensive and stimulating presentation of the theory and applications of a new institutional economics that is changing the way we think about many issues in law, economics, and organization.

Journal of Institutional and Theoretical Economics The Economic Institutions of Capitalism represents by far the most comprehensive treatment of the issues of economic organization and institutional choice in the economic literature to date, and given its scope and quality, is likely to remain so for the foreseeable future...Essential reading for anyone seriously concerned with the theory or public policy of contracting and organization.

The Academy of Management Review Oliver Williamson has written the most important book on the corporation since Berle and Means' The Modern Corporation and Private Property. --This text refers to an out of print or unavailable edition of this title.

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Product Details

• Paperback: 468 pages
• Publisher: Free Press (October 1, 1998)
• Language: English
• ISBN-10: 068486374X
• ISBN-13: 978-0684863740
• Product Dimensions: 8.8 x 5.8 x 1.4 inches
• Shipping Weight: 1.5 pounds (View shipping rates and policies)
• Average Customer Review: 4.2 out of 5 stars See all reviews (4 customer reviews)
• Amazon.com Sales Rank: #491,305 in Books (See Bestsellers in Books)

Customer Reviews

Most Helpful Customer Reviews

31 of 32 people found the following review helpful:

4.0 out of 5 stars A classic of new institutional economics, January 11, 2001

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

EIoC is a classic work of new institutional economics. In it, Williamson works out his theories of transaction cost economics across an array of interesting economic questions. Most of the covered topics will be of interest not only to economists, but also to lawyers and policymakers. Among other examples, Williamson tackles such subjects as vertical integration, corporate governance, and industrial organizations.

Williamson's core idea is the theory of transaction cost economics. 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.

At the policy level, transaction cost analysis is highly relevant to setting legal rules. Suppose a steam locomotive drives by a field of wheat. Sparks from the engine set crops on fire. Should the railroad company be liable? In a world of zero transaction costs, the initial assignment of rights is irrelevant. If the legal rule we choose is inefficient, the parties can bargain around it. In a world of transaction costs, however, the parties may not be able to bargain. This is likely to be true in our example. The railroad travels past the property of many landowners, who put their property to differing uses and put differing values on those uses. Negotiating an optimal solution will all of those owners would be, at best, time consuming and onerous. Hence, choosing the right rule-which is typically the rule the parties would have chosen if they were able to bargain (the so-called hypothetical bargain)-becomes quite important.

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 EIoC is largely free of the recreational mathematics that plagues 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. (The business about contracting nodes, pp. 32ff, is a classic example.)

8 of 9 people found the following review helpful:

4.0 out of 5 stars Very useful for corporate lawyers, November 9, 2004

By	Antonio Nunez (Bogotá, Colombia) - See all my reviews (REAL NAME)

As a lecturer in law and economics I have used big chunks of this book as teaching material. Another reviewer commented on the unfortunate writing style. I agree. Williamson is not accessible without significant effort from the reader, and often unnecessarily so. But he is also extremely enlightening. His analysis on contract governance is brilliant, and I have used his schematics on contract structures in both academic and professional life. I advise lawyers who work in the corporate field, particularly in complex contractual arrangements, such as franchises or distribution agreements, to read this book. It is really an eye-opener on why sometimes contracts fail to work as expected.

5 of 5 people found the following review helpful:

5.0 out of 5 stars Why hadn't I heard more about this sooner?, July 16, 2006

By	E. Husman "ehusman" (Las Cruces, NM USA) - See all my reviews (REAL NAME)

I was searching for something about comparative organizational forms - such as how is Toyota organized differently than GM and how does this benefit them? - when I found this. After searching around, I discovered that Oliver Williamson is both one of the most prolific writers and one of the most cited. Coase's 1937 essay, "The Nature of the Firm", challenged economists to open up the black box that neoclassical economics refers to as "the firm". Williamson responded by creating a whole new tool box for analyzing a wide variety of relationships called the New Institutional Economics (NIE). This book summarizes the state of NIE as of 1985.

The basic outline of NIE is easy to grasp, but shifts the focus of economics from choice to contract. Contractual man, furthermore, is not the perfect maximizer assumed in neoclassical economics. It might help if the reader knows a little about antitrust theory as it applied in the middle of the 20th century to vertical integration since much of this book is dedicated to showing why that theory overlooked the efficiency benefits. Williamson then applies it to the organization of labor (hierarchy vs. team production), unionization, corporate governance, and finally public utility franchise bidding.

While I respect Professor Bainbridge's experience teaching material this difficult, I personally didn't find the writing so bad as to deduct a star. Yes, it is jargon-filled, but this is a specialist's field. Once you learn the vocabulary, it seems to move along at a good pace without suffering from some of the archaic terminology found in law texts. It contains some rather simple math (which the reader can skim without losing anything of the argument). I especially liked how Williamson diagrams the decision-making process.

If you want to know more about why the business world is the way it is, this book will at least provide a new way of thinking if not the actual answers. It proposes and then offers answers to a variety of puzzles, but more importantly it shows how subtle changes in the analysis framework can yield better answers, which I think makes it worthwhile reading.