Question answer for Managerial Economics. Transactional Economics – Williamson and Coase’s Theorem

Transactional Economics – Williamson and Coase’s Theorem
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April 9, 2020
Generally speaking, both Coase’s and Williamson’s theories have contributed significantly to the current paradigms used in the field of transactional economics. On the one hand, Coase’s theory states that in competitive markets, bargaining between different corporations would lead to favorable outcomes for the corporations engaged in the bargaining provided that there are no transaction costs between them CITATION Hof86 \l 1033 (Hoffman & Spitzer, 1986). Accordingly, this idea embraces an essential concept in both the field of economics and the law as it describes the ideal situation where corporations can settle property disputes in such a way that both benefits from its outcomes. On the other hand, Williamson’s theory posits that the very existence of a corporation itself is a byproduct of a series of restructuring and innovation that ultimately aims to flatten transaction costs. Particularly, Williamson’s (1981) theory described that the reduction of costs for the firm is almost always done in two parts, namely (1) production costs and (2) transaction costs. He also added that there are three governing principles in this paradigm, which are (1) asset specificity principle, (2) externality principle, and (3) hierarchical decomposition principle CITATION Wil81 \l 1033...