First, the origin and basis of Williamson's research direction
A starting point of wexler study is that John Kang Mangsi completed the generalization and conceptualization of "transaction" in the book Institutional Economics in 1935. Kang Mangsi corresponds to the concepts of "transaction" and "production", and points out that transaction is the transfer of ownership and the smallest analytical unit of institutional economics. He further divided "transaction" into three basic types: the transaction of buying and selling, that is, the exchange relationship between equal people; Management affairs, that is, the command and obedience relationship between superiors and subordinates; Quota trading mainly refers to the relationship between the government and individuals. Kang Mangsi believes that these three functionally interdependent transactions together constitute the whole organization that we call "the operating organization". Kang Mangsi's institutional analysis of transactional units in institutional economics is mainly based on philosophy, law, sociology and psychology rather than economics.
The most important cause of wexler's research is undoubtedly the Nature of Enterprises published by Ronald Gauss in 1937. In this paper, Gauss starts with explaining the following questions; Since individual producers can realize production cooperation through market transactions, why do enterprises still exist? What are the factors that determine the size of an enterprise? Why is there a long-term contractual relationship and vertical integration in successive production stages or between successive industries? In order to explain these problems, Gauss put forward the concept of "transaction fee". The so-called transaction cost refers to the sum of all kinds of expenses necessary to complete the transaction, such as measuring, defining and safeguarding property rights, finding trading partners and trading prices, negotiating transactions, concluding trading contracts, executing transactions, supervising and punishing violations, and maintaining trading order. This concept means that trading activities are scarce and comparable, so it can be included in the scope of economic analysis. The existence of enterprises is precisely to save transaction costs, that is, to replace high-cost market transactions with low-cost internal transactions; The scale of an enterprise is determined on the point that the marginal cost of internal transactions is equal to the marginal cost of market transactions or equal to the marginal cost of internal transactions of other enterprises; Whether there is a long-term contract or vertical integration between continuous production stages or continuous industries depends on the comparison of transaction costs between the two organizational forms. Williamson vividly compares "transaction cost" to friction in physics. However, wexler believes that it will not be of great significance to analyze transaction costs under completely static conditions.
Another main source of wexler's research is "Organization of Economic Activities: Debate on the Choice of Market Allocation and Non-market Allocation" published by kenneth j. arrow in 1969. Economics has long recognized that the market is not omnipotent. The crux of the problem lies in how resources will be allocated when the market fails. From the traditional point of view, the main body at this time is the government, and the resource allocation method that replaces the market is planning. Therefore, often falling into the market is still a classic problem of planning. Arrow pointed out that the main body to overcome market failure is not necessarily limited to the government, but can generally be said to be "organization." The so-called organization is a means to reflect the advantages of group action when the price system is difficult to play its role smoothly. Enterprises, industries, trade unions, universities and governments in a limited sense. They are all organizations that allocate resources in areas where the price system or market cannot function normally. However, Arrow did not propose how to determine the reasons for the market's effectiveness and failure.
Williamson summed up the achievements of predecessors, and made a concrete economic analysis of the transaction costs of different organizational modes with transaction as the basic analysis unit, thus studying such an institutional problem of mutual substitution between enterprises and markets.
Second, the analysis of market failure
As early as the beginning of this century, Pigou analyzed the externality in the market mechanism from the difference between social cost and private cost, demonstrated the market failure and its government substitution, thus distinguished * * * goods from private goods and pointed out that the supply of * * * goods should not be distributed by the market. The Social Cost published by Gauss in 1960 further links externalities with transaction costs. The so-called solution to externalities is actually how to correctly measure and define the boundaries of interests. From this, he put forward the famous Gauss theorem, if the transaction cost is zero, no matter how the power is defined, the optimal allocation of resources can be achieved through market transactions. Within the scope of our current discussion, it can be explained that if the transaction cost is zero, the market will allocate resources completely and effectively. However, in the real world, the transaction cost cannot be zero. So Gauss's argument can be understood like this. Under the condition of positive transaction cost, different definitions of power will lead to different effective allocation of resources. This is called theorem, or anti-Gaussian second theorem. In our discussion, we can think that when there are transaction costs, the market is not necessarily the most effective way to allocate resources.
Williamson's important contribution is to analyze in detail under what circumstances the market transaction cost will be raised to the point of ineffectiveness. His analysis mainly focuses on the following four aspects.