The Williamsonian Ambiguity on Authority and Power in Transaction Cost Economics

Abstract:

Power has traditionally been rejected from economics and more particularly from the economics of the firm. Although he proposes building an interdisciplinary approach to the firm, Williamson rejects power from the economics of transaction costs. However, regarding the theoretical and behavioral hypotheses he makes, we can raise the following question: does the Williamsonian approach to the firm have intrinsic properties for developing a theory of power? After analyzing Williamson’s argument on power/authority, this paper aims to shed light on the fact that the 2009 Nobel Prize winner has built a theory based on power that he rejects due to a questionable methodological choice. Conversely, we defend the thesis according to which power cannot be removed from the economics of the firm and transaction cost economics–at the risk of providing a distorted picture of the reality of capitalism.

Keywords::

• authority
• economic methodology
• power
• theory of the firm
• transaction cost economics

JEL Classification Codes::

• B40
• D23
• L00

Notes

¹ Bowles and Gintis (2008) have stated that (1) power is interpersonal, (2) the exercise of power involves the threat and use of sanctions, (3) the concept of power should be normatively indeterminate, and (4) power must be durable and sustainable. In this view, nonorthodox economists analyze power in economics independently of contractual considerations and this viewpoint differs significantly from the orthodox view of market power.

² Knoedler (1995, 385) notes: “Williamson’s theory of the firm resembles Veblen’s approach in some respects, in that both place emphasis on transactions in explaining the emergence and expansion of large firms. Yet this apparent similarity is misleading and the differences revealing.”

³ In this article, Williamson (1990) cites Selznick (1957), Emerson (1962), Pfeffer (1981), Perrow (1986 [1972]) or Scott (1998 [1982]).

Additional information

Notes on contributors

Bernard Baudry

Bernard Baudry is a full professor of economics at the University of Lyon (France), research fellow at TRIANGLE Research Center and member of IREPE Institute (France). Virgile Chassagnon is a full professor of economics at University Grenoble Alpes (France), research fellow at CREG Research Center and director of the Research Institute for the Political Economy of the Firm (IREPE).

Virgile Chassagnon

Bernard Baudry is a full professor of economics at the University of Lyon (France), research fellow at TRIANGLE Research Center and member of IREPE Institute (France). Virgile Chassagnon is a full professor of economics at University Grenoble Alpes (France), research fellow at CREG Research Center and director of the Research Institute for the Political Economy of the Firm (IREPE).