The Assumptions of the Different Approaches

Abstract

This chapter will, by clarifying some of the (oft-unstated) assumptions that underlie the varieties of capitalism approach as well as those that underpin neo-classical and transaction cost¹ economics, call for greater methodological clarity in linking institutions to outcomes. Despite the fact that the varieties of capitalism perspective explicitly draws on some of the contentions advanced within the transaction cost literature — particularly those concerned with the generation of firm-specific skills — the two perspectives offer diametrically opposed views on the benefits of state-supported² institutions such as works councils and collective agreements: writers within the varieties of capitalism paradigm contend that there are benefits, transaction cost economists that there are none and that there are, indeed, costs. This discrepancy between these two schools of thought has tended to be overlooked.