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Transaction cost economics in practice: Applications and evidence

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Journal of Market-Focused Management

Abstract

Transaction cost economics (TCE) has been criticized for presenting an undersocialized view of human nature, for confusing cause and effect, and for being ad hoc. This article attempts to rebut the last charge by reviewing a large body of empirical evidence on contracting and economic organization. Specifically, we maintain that enough empirical work has been carried out to shift the burden of persuasion to TCE's skeptics. As we show, the empirical evidence lines up remarkably well with the logic of organization described by TCE. After a conceptual and methodological review, we survey a range of studies on vertical integration (including forward integration into marketing and distribution), complex contracts and “hybrid” modes of organization, transfer pricing, and multinational corporations. We conclude with a discussion of the implications of TCE for business organization.

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Authors and Affiliations

  1. Department of Economics, University of Georgia, 30602-6254, Athens, GA

    Peter G. Klein

  2. School of Law (Boalt Hall), University of California at Berkeley, 94720-7200, Berkeley, CA

    Howard A. Shelanski

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  1. Peter G. Klein
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  2. Howard A. Shelanski
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This paper draws on material in Shelanski and Klein, 1995.

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Klein, P.G., Shelanski, H.A. Transaction cost economics in practice: Applications and evidence. J Market-Focused Manage 1, 281–300 (1996). https://doi.org/10.1007/BF00233108

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