Analysis

Ahmed Al Attrash

Economics and Social Issues

Padraic McMickle

“Case Study 1”

The Royal Swedish Award holder, Oliver Williamson is one of the greatest economists of all time as he has many books and writings concerning many economic theories that are considered paranormal in the economic field. The Transaction cost regulation is one of his economic theories. In this theory, Mr. Williamson discusses the transaction cost approach concerning transaction as the essential base of analysis and suggests that” understanding of transaction cost economizing is central to the study of organizations through assessing how their governance structures serve to economize on these transaction costs.” (1)

The basic approaches that Mr. Williamson argue his theory is that transactions costs must be analyzed throughout the comparative cost of adopting, supervising, monitoring, planning, and executing task of alternative governance structure. The article argues that human agents are limited in some sort of scope of rationality, and in such scope the economic exchange can be organized by contracts, and there is possibility to be dishonest concerning the transactions cost. Mr. Williamson states it very clear by saying "A different way of saying it is that while organizational man is computationally less competent than economic man, he is motivationally more complex". (2)

The article states three main dimensions’ of a transaction, which are frequency, degree of durability, and uncertainty. Another important phrase when talking about transaction cost is the asset specificity, which is considered important for affording exchange relation for the buyer and seller in a certain time period.

The article argues that if assets are nonspecific, markets enjoy advantages in both production cost and governance cost respects, such advantages can be as the firms has over markets which are better access to information, and internal organization are able to invoke fiat to resolve differences....