Hostname: page-component-586b7cd67f-tf8b9 Total loading time: 0 Render date: 2024-11-28T23:13:09.265Z Has data issue: false hasContentIssue false
  • English
  • Français

The institutional structure of production revisited

Published online by Cambridge University Press:  19 January 2015

ENRICO ROSSI
ENRICO ROSSI*
Affiliation:
Management Department, The London School of Economics and Political Science, London, UK
*
*Email: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract:

This paper revisits Coase's original description of the Institutional Structure of Production, and disentangles its two constitutive elements: (i) the costs of organizing an activity internally and (ii) the costs deriving from the transaction of the activity on the market. In doing so, I show transaction costs (TC) to be always necessary and sufficient to explain institutions, but only in the Slutsky–Hicks and Samuelson ordinal framework where expenditure functions replace utility functions and actors merely transact services and never control, nor own goods. Yet, if actors can purchase (and therefore control) resources, utility in use cannot be univocally deduced from purchasing behaviours; here ordinal exchange theory must be replaced by Austrian subjective cardinal value theory, where value in use and value in exchange do not coincide. To explain the allocation of activities among firms in this case, actors’ subjective opportunity costs are thus always necessary (and possibly sufficient), while TC are never sufficient. This distinction has fundamental implications for at least two main developments of Coase's original insights: the relationship among competition, socialist planning and the nature of the firm, and the reinterpretation of the Austrian concept of asset specificity in contemporary institutional and organizational economics (OE).

Type
Research Article
Information
Journal of Institutional Economics , Volume 11 , Issue 2: Ronald H. Coase Memorial Issue , June 2015 , pp. 301 - 327
Copyright
Copyright © Millennium Economics Ltd 2015 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Allen, D. (2000), ‘Transaction Cost’, in Bouckaert, B. and Geest, G. (eds.), Encyclopedia of Law and Economics, Volume 1, Cheltenham: Edward Elgar, pp. 893–926.Google Scholar
Bajari, P. and Tadelis, S. (2001), ‘Incentives versus Transaction Costs: A Theory of Procurement Contracts’, RAND Journal of Economics, 32 (3): 387–407.CrossRefGoogle Scholar
Barone, E. (1935), ‘The Ministry of Production in the Collectivist State’, in Hayek, F. (ed.), Collectivist Economic Planning, London: Routledge, pp. 245–290.Google Scholar
Bator, F. (1957), ‘The Simple Analytics of Welfare Maximization’, American Economic Review, 47 (1): 22–59.Google Scholar
Bergson, A. (1938), ‘A Reformulation of Certain Aspects of Welfare Economics’, Quarterly Journal of Economics, 52 (2): 310–334.Google Scholar
Bergson, A. (1949), ‘Socialist Economics’, in Ellis, H. (ed.), A Survey of Contemporary Economics, Homewood: R. D. Irwin for AEA, pp. 412–448.Google Scholar
Blaug, M. (1996), Economic Theory in Retrospect (5th edn.), Cambridge: Cambridge University Press.Google Scholar
Böhm-Bawerk, E. (1891), The Positive Theory of Capital, London: Macmillan.Google Scholar
Buchanan, J. (1969), Cost and Choice, Chicago: Chicago University Press.Google Scholar
Buchanan, J. (1995), ‘Rights, Efficiency and Exchange: The Irrelevance of Transaction Costs’, in Medema, S. (ed.), The Legacy of Ronald Coase in Economic Analysis, Volume 2, Aldershot: Edward Elgar, pp. 175–190.Google Scholar
Buchanan, J. and Thirlby, G., (1973), L.S.E. Essays on Costs, New York: New York University Press.Google Scholar
Bylund, P. (2014), ‘Ronald Coase's ‘Nature of the Firm’ and the Argument for Economic Planning’, Journal of the History of Economic Thought, 36 (3): 305–329.Google Scholar
Chipman, J. (1982), ‘Salute to Gottfried Haberler on the Occasion of His 80th Birthday’, Journal of International Economics, 12 (Sup. 1): 25–30.Google Scholar
Chipman, J. and Lenfant, J. S. (2002), ‘Slutsky's 1915 Article: How it Came to be Found and Interpreted’, History of Political Economy, 34 (3): 553–597.Google Scholar
Coase, R. (1937), ‘The Nature of the Firm’,Economica, 4 (16): 386–405.Google Scholar
Coase, R. (1946), ‘The Marginal Cost Controversy’, Economica, 13 (51): 169–182.Google Scholar
Coase, R. (1960), ‘The Problem of Social Cost’, Journal of Law and Economics, 3: 1–40.CrossRefGoogle Scholar
Coase, R. (1964), ‘The Regulated Industries–Discussion’, American Economic Review P&P, 54 (3): 194–197.Google Scholar
Coase, R. (1970), ‘The Theory of Public Utility Pricing and Its Application’, The Bell Journal of Economics and Management Science, 1 (1): 113–128.Google Scholar
Coase, R. (1972a), ‘Industrial Organization: A Proposal for Research’, in Fuchs, V. (ed.), Policy Issues and Research Opportunities in Industrial Organization, New York: National Bureau of Economics Research, pp. 59–73.Google Scholar
Coase, R. (1972b), ‘Durability and Monopoly’, Journal of Law and Economics, 15 (1): 143–149.Google Scholar
Coase, R. (1973), ‘Business Administration and the Accountant’, in Buchanan, J. and Thirlby, G. (eds.) L.S.E. Essays on Costs, New York: New York University Press, pp. 95–132.Google Scholar
Coase, R. (1988a), The Firm, the Market, and the Law, Chicago: Chicago University Press.Google Scholar
Coase, R. (1988b), ‘The Nature of the Firm: Origin, Meaning, Influence’, Journal of Law, Economics, and Organization, 4 (1): 3–47.Google Scholar
Coase, R. (1990), ‘Accounting and the Theory of the Firm’, Journal of Accounting and Economics, 12 (1): 3–13.CrossRefGoogle Scholar
Coase, R. (1992), ‘The Institutional Structure of Production’, American Economic Review, 82 (4): 713–719.Google Scholar
Coase, R. (1993), ‘Law and Economics at Chicago’, Journal of Law and Economics, 36 (1): 239–254.CrossRefGoogle Scholar
Demsetz, H. (2011), ‘R. H. Coase and the Neoclassical Model of the Economic System’, Journal of Law and Economics, 54 (4): S7–S13.Google Scholar
Friedman, M. (1949), ‘The Marshallian Demand Curve’, Journal of Political Economy, 57 (6): 463–495.CrossRefGoogle Scholar
Georgescu-Roegen, N. (1968), ‘Utility’, in Sills, D. (ed.), International Encyclopaedia of the Social Science (Vol. 16), New York: McMillan.Google Scholar
Graaf, J. (1957), Theoretical Welfare Economics, London: Cambridge University Press.Google Scholar
Haberler, G. (1936 [1933]), The Theory of International Trade: With its Applications to Commercial Policy, London: Hodge.Google Scholar
Haberler, G. (1950), ‘Some Problems in the Pure Theory of International Trade’, The Economic Journal, 60 (238): 223–240.CrossRefGoogle Scholar
Hands, W. (2011), ‘Back to the Ordinalist Revolution: Behavioural Economic Concerns in Early Modern Consumer Choice Theory’, Metroeconomica, 62 (2): 386–410.Google Scholar
Hands, W. and Mirowski, P. (1998), ‘Harold Hotelling and the Neoclassical Dream’, in Backhouse, R., Hausman, D., Mäki, U. and Salanti, A. (eds.), Economics and Methodology: Crossing Boundaries: Proceedings of the IEA Conference Held in Bergamo, Italy, New York: Macmillan Press, pp. 322–397.Google Scholar
Hart, O. (1995), Firms, Contracts and Financial Structure, Oxford: Clarendon Press.Google Scholar
Hayek, F. (1935), Collectivist Economic Planning, London: Routledge.Google Scholar
Hayek, F. (1937), ‘Economics and Knowledge’, Economica, 4 (13): 33–54.CrossRefGoogle Scholar
Hayek, F. (1940), ‘Socialist Calculation: The Competitive ‘Solution’, Economica, 7 (26): 125–149.Google Scholar
Hayek, F. (1945), ‘The Use of Knowledge in Society’, American Economic Review, 35 (4): 520–530.Google Scholar
Hicks, J. (1939), ‘The Foundations of Welfare Economics’, Economic Journal, 49 (196): 696–712.Google Scholar
Hicks, J. and Allen, R. (1934), A Reconsideration of the Theory of Value I and II, Economic Journal, 1 (1): 52–76 & 1(2): 196–219.Google Scholar
Holmström, B. and Roberts, J. (1998), ‘The Boundaries of the Firm Revisited’, Journal of Economic Perspectives, 12 (4): 73–94.Google Scholar
Horwitz, S. (2003), ‘The Austrian Marginalists: Menger, Böhm-Bawerk, and Wieser’, in Samuels, W., Biddle, J. and Davis, J. (eds.), A Companion to the History of Economic Though, Oxford: Blackwell, pp. 262–277.Google Scholar
Hotelling, H. (1938), The General Welfare in Relation to Problems of Taxation and of Railway and Utility rates, Econometrica, 6 (3): 242–269.Google Scholar
Jaffé, W. (1976), ‘Menger, Jevons and Walras De-Homogenized’, Economic Inquiry, 14 (4): 511–524.Google Scholar
Kaldor, N. (1939), ‘Welfare Propositions of Economics and Interpersonal Comparisons of Utility’, Economic Journal, 49 (195): 549–552.Google Scholar
Klaes, M. (2000), ‘The Birth of the Concept of Transaction Cost: Issues and Controversies’, Industrial and Corporate Change, 9 (4): 567–593.CrossRefGoogle Scholar
Lange, O. (1942), ‘The Foundations of Welfare Economics’, Econometrica, 10 (3/4): 215–228.Google Scholar
Langlois, R. (1997), ‘Transaction Costs, Production Costs, and the Passage of Time’, in S. Medema (ed.), Coasean Economics: Law and Economics and the New Institutional Economics, pp. 1–22.Google Scholar
Langlois, R. (2006), ‘The Secret Life of Mundane Transaction Costs’, Organization Studies, 27 (9): 1389–1410.Google Scholar
Lenfant, J.-S. (2006), ‘Complementarity and Demand Theory: From the 1920s to the 1940s’, History of Political Economy, 38 (supp): 48–85.CrossRefGoogle Scholar
Lenfant, J.-S. (2012), ‘Indifference Curves and the Ordinalist Revolution’, History of Political Economy, 44 (1): 113–155.Google Scholar
Lerner, A. (1934), ‘The Concept of Monopoly and the Measurement of Monopoly Power’, Review of Economic Studies, 1 (3): 157–175.Google Scholar
Lerner, A. (1944), The Economics of Control: Principles of Welfare Economics, New York: Macmillan.Google Scholar
Little, I. (1950), A Critique of Welfare Economics, Oxford: Clarendon Press.Google Scholar
Mas-Colell, A., Whinston, M., and Green, J. (1995), Microeconomic Theory, New York: Oxford University Press.Google Scholar
McCulloch, J. (1977), ‘The Austrian Theory of the Marginal Use and of Ordinal Marginal Utility’, Zeitschrift für Nationalökonomie, 37 (3): 249–280.Google Scholar
Medema, S. (1994), Ronald H. Coase, London: Mcmillan.Google Scholar
Medema, S. (2011), ‘A case of Mistaken Identity: George Stigler, “The Problem of Social cost” and the Coase theorem’, European Journal Law and Economics, 31 (1): 11–38.Google Scholar
Menger, Carl (1981 [1871]), Principles of Economics, New York: NYU Press.Google Scholar
Mirowski, P. and Hands, D. W. (2006), Agreement on Demand: Consumer Theory in the Twentieth Century (eds.), Durham: Duke University Press.Google Scholar
Mises, L. (1949), Human Action: A Treatise on Economics, New Haven: Yale University Press.Google Scholar
Mishan, E. (1960), ‘A Survey of Welfare Economics, 1939–1959’, Economic Journal, 70 (278): 197–265.Google Scholar
Moscati, I. (2013a), ‘How Cardinal Utility Entered Economic Analysis: 1909–1944’, European Journal of the History of Economic Thought, 20 (6): 906–939.CrossRefGoogle Scholar
Moscati, I. (2013b), ‘Were Jevons, Menger, and Walras Really Cardinalists? On the Notion of Measurement in Utility Theory, Psychology, Mathematics, and Other Disciplines, 1870–1910’, History of Political Economy, 45 (3): 373–414.Google Scholar
Moscati, I. (2013c), ‘Austrian Debates on Utility Measurement from Menger to Hayek’, CESMEP Working Paper 6/2013 (November 2013): 1–42.Google Scholar
O’Brien, D. (1990), ‘Lionel Robbins and the Austrian Connection’, in Caldwell, B. (ed.), Carl Menger and his Legacy in Economics, Durham: Duke University Press, pp. 155–184.Google Scholar
Robbins, L. (1935 [1932]), An Essay on the Nature and Significance of Economic Science (2nd edn.), London: Macmillan.Google Scholar
Robbins, L. (1953), ‘Robertson on Utility and Scope’, Economica, 20 (78): 99–111.Google Scholar
Rothbard, M. (1956), ‘Toward a Reconstruction of Utility and Welfare Economics’, in Sennholz, M. (ed.), On Freedom and Free Enterprise, Princeton: Van Nostrand, pp. 224–262.Google Scholar
Samuelson, P. (1938), ‘A Note on the Pure Theory of Consumer's Behaviour’, Economica, 5 (17): 61–71.Google Scholar
Samuelson, P. (1947), Foundations of Economic Analysis, Cambridge, MA: Harvard University Press.Google Scholar
Samuelson, P. (1950), ‘Evaluation of Real National Income’, Oxford Economic Papers, 2 (1): 1–29.Google Scholar
Samuelson, P. (1956), ‘Social Indifference Curves’, Quarterly Journal of Economics, 70 (1): 1–22.Google Scholar
Samuelson, P. (1974), ‘Complementarity: An Essay on the 40th Anniversary of the Hicks-Allen Revolution in Demand Theory’, Journal of Economic Literature, 12 (4): 1255–1289.Google Scholar
Schultz, H. (1935), ‘Interrelations of Demand, Price, and Income’, Journal of Political Economy, 43 (4): 433–481.Google Scholar
Schumpeter, J. (1954), History of Economic Analysis, New York: Oxford University Press.Google Scholar
Scitovsky, T. (1941), ‘A Note on Welfare Propositions in Economics’, Review of Economic Studies, 9 (1): 77–88.Google Scholar
Scitovsky, T. (1951), ‘The State of Welfare Economics’, American Economic Review, 41 (3): 303–315.Google Scholar
Segal, Y. and Whinston, M. (2013), ‘Property Rights’, in Gibbons, R. and Roberts, J. (eds.), The Handbook of Organizational Economics, Princeton: Princeton University Press, pp. 100–158.Google Scholar
Slutsky, E. (1915), ‘Sulla Teoria del Bilancio del Consumatore’, Giornale degli Economisti, 51 (26): 1–26.Google Scholar
Stigler, G. (1950), ‘The Development of Utility Theory I and II’, Journal of Political Economy, 58 (4): 307–327 & (5): 373–396.Google Scholar
Stigler, G. (1966), The Theory of Price (3rd edn.), New York: Macmillan.Google Scholar
Stigler, G. (1968), The Organization of Industry, Homewood: R. D. Irwin.Google Scholar
Streissler, E. (1972), ‘To what Extent was the Austrian School Marginalist?’, History of Political Economy, 4 (2): 426–441.Google Scholar
Tadelis, S. and Williamson, O. (2013), ‘Transaction Cost Economics’, in Gibbons, R. and Roberts, J. (eds.), The Handbook of Organizational Economics, Princeton: Princeton University Press, pp. 159–189.Google Scholar
Wicksteed, P. (1910), The Common Sense of Political Economy, London: McMillan.Google Scholar
Wieser, F. (1930 [1889]), Natural Value, New York: Stechert&Co.Google Scholar
Williamson, O. (1985), The Economic Institutions of Capitalism, New York: Free Press.Google Scholar
Williamson, O. (1988), ‘Technology and Transaction Cost Economics: A Reply’, Journal of Economic Behaviour and Organization, 10 (3): 355–363.Google Scholar
Williamson, O. (1991), ‘Comparative Economic Organization: The Analysis of Discrete Structural Alternatives’, Administrative Science Quarterly, 36 (2): 269–296.Google Scholar
Williamson, O. (2000), ‘The New Institutional Economics: Taking Stock, Looking Ahead’, Journal of Economic Literature, 38 (3): 595–613.Google Scholar
Williamson, O. (2010), ‘Transaction Cost Economics: The Natural progression’, American Economic Review, 100 (3): 673–690.Google Scholar