Comparative Economic Organization: The Analysis of Discrete Structural Alternatives

TLDR

The paper seeks to combine institutional economics, contract law, and organization theory to delineate the key differences among market, hybrid, and hierarchical economic organization forms and to unify institutional environment and governance institutions by treating environmental parameters as drivers of governance cost shifts. The authors examine how changes in property rights, contract law, reputation effects, and uncertainty alter the comparative governance costs of the three organization forms, treating the institutional environment as a parameter space that shifts governance cost dynamics. The analysis shows that market, hybrid, and hierarchical forms differ in coordinating and control mechanisms, adaptiveness to disturbances, and are defined by distinct contract law types, with the cost‑effective choice of form systematically varying with transaction attributes.

Abstract

Oliver E. Williamson University of California, Berkeley This paper combines institutional economics with aspects of contract law and organization theory to identify and explicate the key differences that distinguish three generic forms of economic organization-market, hybrid, and hierarchy. The analysis shows that the three generic forms are distinguished by different coordinating and control mechanisms and by different abilities to adapt to disturbances. Also, each generic form is supported and defined by a distinctive type of contract law. The costeffective choice of organization form is shown to vary systematically with the attributes of transactions. The paper unifies two hitherto disjunct areas of institutional economics-the institutional environment and the institutions of governance-by treating the institutional environment as a locus of parameters, changes in which parameters bring about shifts in the comparative costs of governance. Changes in property rights, contract law, reputation effects, and uncertainty are investigated.'