The Nature of the Firm: Origins, Evolution, and Development

by Oliver E. Williamson (Editor), Sidney G. Winter (Editor)

In 1937, Ronald H. Coase published "The Nature of the Firm," a classic paper that raised fundamental questions about the concept of the firm in economic theory. Coase proposed that the comparative costs of organizing transactions through markets rather than within firms are the primary determinants of the size and scope of firms. Coase won the 1991 Nobel Prize in Economics for this work. This volume derives from a conference held in 1987 to commemorate the fiftieth anniversary of the publication of Coase's classic article. The first chapter affords an overview of the volume. It is followed by a republication of the 1937 article, and by the three lectures Coase presented at the conference. These lectures provide a lively and informative history of the origins and development of his thought. Subsequent chapters explore a wide-range of theoretical and empirical issues that have arisen in the transaction cost economic tradition. They illustrate the power of the transaction cost
approach to enhance understanding not only of business firms, but of problems of economic organization generally. In addition to Coase's work, contributors include Sherwin Rosen, Paul Joskow, Oliver Hart, Harold Demsetz, Scott Masten, Benjamin Klein, as well as the volume's editors, Oliver E. Williamson, and Sidney G. Winter. The Nature of the Firm includes Coase's acceptance speech for his Nobel Prize in Economics.

Genres: Economics, Business, Nonfiction

244 pages, Paperback

First published January 1, 1991

Reviews

[Lloyd Fassett · Rating 5 out of 5]

This book is hard to find outside of $75 for a used paperback version. It's from a conference celebrating the 50th Anniversary of Ronald Coase's 'Nature of The Firm' essay from 1937 where he first outlined what Transaction Costs are. It's a collection of essays from 1987 including the original and follow on reflections from Ronald Coase.

It was extremely important to me as I'm a marketplace entrepreneur. Without going into the details, Transaction Costs are to business what Dark Matter is to Physics, the most ubiquitous and least understood force that moves the universe.

[andrew y · Rating 5 out of 5]

You don't want to read this unless you do in which case get ready, it is as good as you're hoping

[Brett Matthews · Rating 4 out of 5]

Economists always tout the great benefits of a 'free market' in which buyer and seller remain entirely independent of each other, save for one-off transactions. So why, Ronald Coase inquires in the classic (1937) title essay of this book, do companies and organizations exist at all? Why don't they resort to one-off transactions for a day's labour here, a month's rent over there, and a delivery truck on demand? If free markets are so efficient, why do firms internalize billions of dollars of transactions every day?

Coase claimed that many types of transactions are efficient in a free market, but there are 'transaction costs' that limit the efficiency of others. It's tough to find workers with exactly the right skills to fit a particular firm, for example, and once they are found it takes some time to assess their realizable value. These information and negotiating costs mean that most specialized and skilled human resources are internalized by firms. Other investments with high transaction costs include specialized machinery and technical knowledge.

In this book Williamson extends Coase's theoretical analysis in some practical directions. For example, he explores the mechanisms that govern different forms of transactions. Staff who work for a firm for a very long time become highly knowledgeable about its operations or its internal culture or public positioning, which strengthens their negotiating positions and shifts the balance of governance. Supplier firms can develop machinery that is so finely integrated to the firm's manufacturing processes that it is better to acquire them than lose the relationship.

For me, the relationship between transactional governance and the length of the mutual commitment between buyer and seller is fascinating, because it has very broad implications. The longer a commitment between two parties, the less possible it is to predict all the events that might come up, or to reduce the governance structure to a written contract. In a lot of contexts where the formal (text-based) economic and financial sectors have yet to consolidate because the nation has yet to attain mass literacy, this means that large numbers of transactions fail or are very precarious - for example voluntary savings accounts, insurance, or parliamentary democracy.