What is Oliver Williamson's theory of the firm?
My theory of the firm, rooted in transaction cost economics, posits that firms emerge as a more efficient way to govern certain types of transactions than relying solely on impersonal markets. This efficiency arises when transactions exhibit high asset specificity, uncertainty, or frequency, making them prone to opportunistic behavior and necessitating more specialized governance structures, such as internal hierarchies, to mitigate these costs.
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