Firms, Markets and Transaction Cost Economics

Michael Dietrich

Scottish Journal of Political Economy, 1991, vol. 38, issue 1, 41-57

Abstract: This article argues that transactions cost economics cannot explain the existence of firms; at most it is only potentially half a theory of economic organization as it makes no statement about any benefits derived from resource use. A general analytical framework is suggested that accounts for the existence of firms in terms of (1) the (non)transferability of skills or knowledge base of an organization; and (2) systems and procedures to ensure profit appropriation. Both of these factors, along with transactions costs, are rooted in the wider area of informational uncertainty and complexity. Copyright 1991 by Scottish Economic Society.

Date: 1991
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