Key Characteristics of Tce

1640 Words7 Pages
1) Key characteristic of TCE Transaction Cost Economics (hereafter TCE) was widely used by Oliver E.Williamson (1972, 1985) to build further on Ronald Coase’s paper on “The Nature of Firm (1937) which is base on Ronald’s concept and discussion of cost using the pricing mechanism. Oliver’s (a Nobel Prize winner of Nobel Prize in Economics, 2009) transaction cost reasoning not only involved buying and selling, but also day to day emotional interactions, informal gift exchanges, etc. Base on Oliver’s concept of TCE, his believes the determinants are Frequency, Specificity, Uncertainty, Limited rationality and Opportunistic behavior. In that, his linking of the concept of TCE to organization theory he believes this could be supported by 3 assumption that is Bounded Rationality, Opportunism and Asset specificity which along with 2 variables such as Frequency and Uncertainly can help organization to better understand their decision making behavior. Below is description of what the 3 assumption are in more details: • Bounded Rationality Bounded rationality indicated that individuals are bounded by limitation and processing information where uncertainty exist either from management not having sufficient information or individuals sidetrack in their rationality when there is too much information. As a result, often enough they are not able to write complete contracts (besanko 5th chapter 5, pg 133 ) . According to Williamson (1996) he believes all employees in any organization are limited by their knowledge experience or skills in reaction to information or processing through it. With this often organization will incur cost to reduce the gaps or errors deriving from the original contract • Opportunism This refer to a consequences of using a situation to one’s best advantages where one of the exchanging party has an upper hand in having more information to

More about Key Characteristics of Tce

Open Document