Framework

Transaction cost economics

The question it answers

When deciding whether to make or buy an activity, which ones should a business owner keep in-house and which should go to the market or a digital platform?

Origin
Williamson, 1981; Simon, 2000
Diagram type
Hub diagram
Level of analysis
Firm
Topics
Entrepreneurship & innovationStrategy & leadership
Rocket lifting off from a glass light bulb, icon for entrepreneurship and innovation

Diagram

Transaction cost economics

The efficient boundary of the firm
Bounded rationality
Opportunism
Monitoring frequent transactions
Uncertainty
Asset specificity

When to use it, and when not to

Use it when

Score each activity on the five factors; high scores favour keeping it in-house, low scores favour outsourcing or a platform.

Sources

References

Listed A–Z by author surname, Harvard style. A source with a DOI links to https://doi.org/…; one without links to its page or says plainly that it has no DOI.

  1. Simon, H.A. (2000) ‘Public administration in today's world of organizations and markets’, PS: Political Science & Politics, 33(4), pp. 749–756.doi:10.2307/420911Source page
  2. Williamson, O.E. (1981) ‘The economics of organization: the transaction cost approach’, American Journal of Sociology, 87(3), pp. 548–577.doi:10.1086/227496Source page