The Mechanisms Of Governance

Abstract New Institutional Economics is a new way to look at how organizations function. Rather than seeing the firm as a “black box”, Williamson shows how decision makers respond to economic factors WITHIN the firm—what he calls “transaction cost economics” (TCE). In this series of studies, Williamson shows how complexity expands in organizations because of bounded rationality and opportunism; that is the “bad news” of his message. The “good news” is that individuals within organizations become perceptive of resulting hazards they may and do encounter, and are adept at fashioning their organizations to cope creatively with difficult situations. This creativity accounts for diversity among organizations, in which governance structures are adapted to firm—or industry-specific hazards.