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The Man Who Reduced the Transaction Cost of Economics

Oliver Williamson

On 21 May 2020, one of the most cited economists of all time and a key contributor to organisational studies, Oliver E Williamson passed away. His intellectual apparatus of transaction cost economics is a powerful tool to explain a range of real-life phenomena across a variety of disciplines with impeccable practical implications.

On 10 December 2009, Professor Tore Ellingsen read out from the podium of Concert Hall in Stockholm, “….in its 271st year, the Royal Swedish Academy of Sciences could not have awarded a more timely prize,” and called upon Professors Elinor Ostrom and Oliver Williamson to receive the Nobel in economics. What was so timely about this annual ritual? It was also the year of the great economic downturn that saw big banks and hedge funds fail, and a time when the faith in model wielding, invincible economists was shaken. Paul Krugman, the 2008 prize winner, had recently remarked in the New York Times that “...the economics profession went astray because economists as a group, mistook beauty, clad in impressive-looking mathematics, for truth” (Krugman 2009).

Silently, yet with unwavering persistence, a group of scholars had continued to challenge this dominance. They made it impossible to ignore that institutions and organisations (structures) shape eco­nomies (constructs), and not vice versa. Both Ostrom and Williamson were champions and leaders of this group. Ostrom (a political scientist by training) contributed through painstaking analysis of the role of institutions in natural resource management, puncturing the age-old doctrine of the tragedy of commons and exposing the myopia of looking at humans as “selfish” Homo economicus. Williamson, on the other hand, showed how assumptions of perfect rationality in economic models blinded analysts to the plurality of organisational forms that existed—from small business, family firms and farms, to franchisees, to alliances, to big corporations to natural monopolies—and how these structures have an impact on the society and the economy. Without analytically understanding why certain organisational forms exist, the economists’ idea of deregulated efficiency could, simply, be a mirage.

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Updated On : 24th Jul, 2020

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