The transaction cost theory (or transaction cost beginning, TKA; English transaction cost theory) is an organizational theory, which is ranked among the new and which contract has as organization form in the center of its interest of research. The transaction cost theory would like to explain, why certain transactions in certain institutional arrangements, organization forms of the exchange, are thus completed and organized more or less efficiently. (see Ebers, Gotsch: theories of the organization, in: Kieser, A., S.225) you assumes any acting is connected with costs in a free-market economy. This theory stands in the contradiction with the conception of a perfect market.

The TKA waives the neglect of institutions in the understanding of the neoclassical theory.

Fundamental ideas

Transactions are the basic units of the analysis of the transaction cost theory and mean all transmissions of rights of disposal at goods and services in exchange relations between at least two contracting parties.

As an economic theory the efficiency of the transactions is an important driver. As economical an employment of scarce as possible resources ressourcen.Knappe resources is meant after Williamson not only with production of the exchange property and/or a service is used here (to arise of production costs), but also for the completion and organization of the exchange (arise from transaction costs).

Williamson (Williamson, 1975) differentiated still between ex-ante transaction costs, as for instance costs of the contract, information and negotiation, thus costs, those before coming off the contract to result and ex post office transaction costs, like costs of control, penetration and additional contract adjustments, which can result after conclusion of a contract and achievement exchange.

Transactions are efficient if the participants select an organization form, who exhibit smallest production and transaction costs in the sum.

Behavior acceptance

The transaction theory subordinates the contracting parties:

• Limited (Simon, 1959): Due to limited perception and information the people picture not completely rational acting is taken as a basis.
• Opportunismus: The partners behave their interests following and try by cunning and their use to maximize.
• Risk neutrality: This is accepted in the context of the transaction cost theory for simplification.

Transaction characteristics

In the transaction cost theory three factors affect the costs:

• Uncertainty: Here distinctive between the parametric uncertainty, which contains an occurring of unforeseeable environmental influences in the future, and which behavior uncertainty, which is based on the possible oppertunistischen behavior of the contracting parties.
• Transaction specific investment: This describes in the context of a transaction the necessary investment in a firm specific qualification or a production-specific plant.
• Frequency: With increasing number of identical transactions production sinks like also transaction costs. It can come thus to scale and synergies.

Characteristics of institutional arrangements

Williamson differentiates three kinds from contractual relations, which justify institutional organization forms:

• classical contracts - completion of transactions over the market: As example for this a normal sales contract can be consulted over a simple product. The conditions as per contract are fixed fixed first, the transaction are by short duration and none the partner count on additional adjustments of the contract.

• neoclassical contracts - completion over long-term contracts: Here it concerns transactions, with which the contracting parties cannot to specify and therefore on adjustment need count in front all conditions in contracts. This takes place via safeguard, adjustment and warranty clauses. As example Joint ventures or Franchising can be called. Williamson calls this institutional arrangement the hybrid form.

• relational contractual relations - completion in organizations: This contractual relation describes a complex social relationship, which common decisions of the transaction partners and co-ordinated adjustments require and development. Williamson calls here as example the completion of transactions in organizations themselves, thus achievement production in the enterprise.

Main statements

A goods and/or an achievement exchange, which exhibits small uncertainty and is connected with no transaction specific investments, will be completed over the institutional arrangement market. Opportunistisches acting of the contracting party is limited by the multiplicity of the existing competitors and its strong incentive intensity. Additionally an additional contract adjustment is connected with small costs and can be interspersed also by a contracting party autonomously, by looking for itself for example a new offerer.

With increasing dependence of the contracting parties by high transaction specific investments, for example into a new manufacturing plant, the incentive of the contracting parties rises opportunistisch to act, in order to thus acquire itself the quasi-pensions. Thus is a hybrid organization form the most suitable form, in which the contracting parties protect themselves by agreement of duties to supply information or sanctions during non--fulfillment of a contract against opportunistischem behavior and possible resulting Nachverhandlungs or Anpasssungskosten anticipate.

An organization-internal achievement production is with very large uncertainty and large transaction specific investments the most economical institutional arrangement. In front transaction costs can be saved such as provision of information, costs of the contract and negotiation and also later adjustments are internally substantially easier to complete. Opportunistisches behavior can be switched off by its own control and control system in the organization possibly completely.

A goal is the choice of the organization form, with which the transaction costs of the co-ordination (information and communication) are minimal and which possible efficiency of the exchange and the security of the investments is ensured.

The success of the transaction essentially depends on the inclination of the participants to the Opportunismus. The smaller the number of participants, the more largely is the inclination to the Opportunismus (small numbers problem).

The following diagram shows the connections between the possible institutional arrangements and factor specificity. Here internal achievement production, the form of the relational contractual relation, as hierarchy are thus called and the hybrid organization form as network.

After Williamson transactions with high specificity are to be completed better in the hierarchy form, with low specificity however, over the market (see fig.).

The classification of the enterprise networks (independent organization form between market and hierarchy or an intermediate form) is however still questionable. Sydow understands enterprise networks as hybrid, intermediate organization form between market and hierarchy on the basis of neoclassical contracts.

Ranges of application

• Make or Buy decisions: The transaction cost theory was empirically examined often, in connection with the decision between own or stranger position. Particularly in the automobile industry, if it concerns the purchase or the integration of whole enterprises.

• Internationalization strategies of multinational enterprises: Here above all the institutional organization was examined by international strategic alliances, like for example Joint ventures.

• Organization of conditions of employment: Meant here investigations of work contracts, rights of codetermination and protection against dismissal are in the point of view of the transaction cost theory.

Social control mechanisms

Confidence

• Efficiency-increasing means
• Lowering of the control costs
• of the negotiation duration
• Confidence as risk understanding

In the clearance both chances and dangers of co-operation develop. A fair filling out of clearance represents a substantial condition of co-operation.

Culture

Thing in common in preferences, values, goals and authority minimizes co-ordination costs. This facilitates mutual coordination and Lernen.Die of aspects of efficiency dominates. With long-term relations however it can come into very uniform cultures to higher transaction specific investments, which increase dependence and permit it, the weaker ones to use and opportunstisch behave. Thus develop co-ordination costs, which undermine the efficiency advantages.

Reputation

Reputation can be interpreted as specific capital, which applies to defend it, to more possibilities for the Opportunismus to exist. Good Reputation lowers the incentive to the opportunistischen behavior. Thus information and negotiation costs are reduced.

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