Review of Industrial Organization 14: 183–185, 1999.
Transaction Cost Economics: Recent Developments. Claude Menard, editor.
Brookﬁeld: Edward Elgar, 1997, xvi + 167 pages, $65.
This collection of papers constitutes a useful contribution illustrating the range, am-
bition and outstanding tensions associated with transaction cost economics. Con-
tributions from some of the most prominent ﬁgures in the ﬁeld focus on theoretical
and methodological issues relating to the further elaboration and development of
transaction cost economics. There are also more concrete studies using the cate-
gories of this increasingly inﬂuential perspective to consider particular substantive
questions. The objective of transaction cost economics to move towards a more
relevant economics capable of incorporating social institutions and understanding
social processes of change is clearly evident. At the same time the characteristic
tensions and ambiguities of transaction cost economics remain regarding the no-
tion of the institutional environment and the connection between transaction cost
economics and orthodox economic theory.
Two themes are identiﬁed by the editor as central to the collection: the use
of transaction cost economics to analyse the internal properties of large organi-
sations constitutes the primary concern of the ﬁrst three contributions while the
remaining papers focus on the interactions between the institutional environment
and governance arrangements. The paper by Menard insists that the degree of as-
set speciﬁcity is crucial to explaining the nature of the employment relationship.
The argument developed is that the characteristics of transactions have substantial
consequences for how formal organisations are structured, which forms of task
interdependence they develop, what incentives and control devices they implement,
and what types of internal government they install. Bouttes and Hamamdjian set
out to formally model the contractual arrangements that can be identiﬁed within
large ﬁrms. The authors explore the nature of the ﬁrm as a hierarchical system
and deﬁne three different contractual modes: complete contracts, residual rights
allocation and project contracts and consider how these contractual arrangements
The papers by Menard and Bouttes and Hamamdjian seem especially concerned
to add operational content to the transaction cost arguments they deploy. This
theme is also evident in the paper by Oliver Williamson. Williamson restates the