The lens of contract focuses predominantly on gains from trade whereas orthodoxy is focused on resource allocation.
— Oliver E. Williamson
Vertical intergration is an organizational response to the contracting difficulties that attend intermediate product markets where trades that are supported by transaction-specific assets are exposed to hazard.
If you believe that markets operate in Alan Greenspan fashion, then you don't inquire into the details.
The remediableness criterion is an effort to deal symmetrically with real world institutions, both public and private, warts and all. The criterion is this: an extant mode of organization for which no superior feasible form of organization can be described and implemented with expected net gains is presumed to be efficient.
My first jobs after graduation in 1955 were as a project engineer for G.E. and later with the U.S. government in Washington, D.C., where I met and married my wife, Dolores Celini.
The organization of the government itself is something which we ought to examine in a more self-conscious way - the Federal Reserve and the Treasury and the Securities and Exchange Commission. The mission that each of them has is mainly economic but should be informed by good organizational practices.
The transaction cost approach maintains that some projects are easy to finance by debt and ought to be financed by debt. These are projects for which physical-asset specificity is low to moderate.
The field of 'economics and organization' is still young and needs support. I have been a chaired professor much of my academic life and know that such chairs are important for recruiting and retaining faculty.
Ronald Coase, in his classic 1937 paper on 'The Nature of the Firm,' was the first to bring the concept of transaction costs to bear on the study of firm and market organization.
My initial thoughts of becoming a lawyer changed in high school as I became more attracted to math and science and began talking about being an engineer.
The hypothesis that economic organization is the resultant of a series of historic accidents is intructive in that many organizational innovations appear to be the result of trial and error.
Managerial discretion can take many forms, some very subtle. Individual managers may run slack operations; they may pursue subgoals that are at variance with corporate purposes; they can engage in self-dealing.
The presumption that an extant mode is efficient if the expected net gain is negative can nevertheless be rebutted by showing that the obstacles to implementing an otherwise superior feasible alternative are 'unfair.'
Teaching can be learning, especially if student curiosity with the question 'What's going on here?' can be elicited.
My university teacher and mentor Kenneth Arrow remembers me as a student who asked good questions. Although I had not previously thought of myself in that way, on reflection I think that Arrow was right.
