Transaction Cost Theory: Past Progress, Current Challenges, and Suggestions for the Future

Transaction cost theory (TCT) has been fruitfully applied to a wide range of organizational phenomena, as reflected in a vast and evolving body of research. However, in part due to the theory's broad success, important advances in some fields have not diffused to other fields. In this essay, we lay out a path toward a pluralistic view of TCT that incorporates insights from multiple fields, primarily strategy and international business. In so doing, we critically assess the assumptions, key constructs, and evolving theoretical logic of TCT. We then propose an agenda for future research, highlighting opportunities for scholars to (a) expand and deepen the exchange of insights between strategy and international business, and further integrate TCT with the trust literature and with recent insights from behavioral economics and psychology, and (b) further apply TCT to study recent phenomena such as platforms and two-sided markets, the implications of artificial intelligence for governance decisions, and the pursuit of nonpecuniary objectives such as sustainability.