Comparative Economic Organization: The Analysis of Discrete Structural Alternatives

Abstract:This paper combines institutional economics withaspects of contract law and organization theory to identify and explicate thekey differences that distinguish three generic forms of economicorganization-market, hybrid, and hierarchy. The analysis shows that the threegeneric forms are distinguished by different coordinating and controlmechanisms and by different abilities to adapt to disturbances. Also, eachgeneric form is supported and defined by a distinctive type of contract law.The cost effective choice of organization form is shown to vary systematicallywith the attributes of transactions. The paper unifies two hitherto disjunctareas of institutional economics-the institutional environment and theinstitutions of governance-by treating the institutional environment as a locusof parameters, changes in which parameters bring about shifts in thecomparative costs of governance. Changes in property rights, contract law, reputationeffects, and uncertainty are investigated.