Traditional Economic Theory

• Resources exchange in a free market
• Actors have "perfect knowledge" of potential outcomes
• Transactions occur instantaneously at "fair market" prices.
• Multitude of buyers and sellers
• Actors trade in their long-term self interest

Williamson's Transactional Cost Analysis
Markets and Hierarchies

Organizations form to minimize economic impact of:

• * Bounded rationality
• * Uncertainty
• * Information Impactedness
• * Small Numbers
• * Opportunism

The internal markets of organizations can minimize these factors by:

• * punishing subversion of group
• goals
• * auditing internal transactions
• * mediating internal disputes
• * reduce information impactedness

Contractual Man

Three forms of rationality:

• * Maximizing rationality
• * Bounded rationality
• * Organic rationality

Three Levels of Self-Interest

• * Opportunism
• * Simple self-interest
• * Obedience

Transactions have three dimensions:

• * Asset specificity
• * Uncertainty
• * Frequency

Fundamental transformation allows first partners a future bidding advantage over other competitors ("locked-in" behavior)

Granovetter's Embeddedness Theory

Embeddedness

• * economic action is embedded in structures
• of social relations
• * order is found in the market because of
• personal relations and networks of relations
• between and within firms
• * personal networks generate trust and
• discourage malfeasance

Internal vs External Organizations

• * information travels among firms
• * internal auditing is no more efficient than
• external
• * internal resolution of conflict is not
• empirically proven

Malfeasance

* force or fraud acted out in one's self-

interest

Under and Oversocialized Assumptions

• * economic theory "atomized" and under-
• socialized
• * social theory doesn't consider economic
• action and is too socially deterministic
• * yet rational action is a "good working
• hypothesis"

Quasi-Firm

* arrangement of extensive, long-term

relationships among other firms

Vertical Integration

* occurs where transacting firms lack a

network of personal relations

Interlocking Behavior