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on April 25, 2001
Oliver Williamson is one of the seminal figures of New Institutional Economics. "The Mechanisms of Governance" is the third book in which Williamson has collected his principal writings, while working them into a coherent whole. The earlier volumes, "Markets and Hierarchies" and "The Economic Institutions of Capitalism," are justly regarded as the foundational texts of the transaction costs economics school of institutional economics. "The Mechanisms of Governance" seems certain to join them as essentials for any legally literate economist or economically literate lawyer.
Transaction cost economics focuses on institutions, in contrast to neoclassical economics' focus on individuals, providing simple models that help us understand how institutions function and how they will respond to regulation. We can analogize transaction costs to friction: they are dead weight losses that reduce efficiency. They make transactions more costly and less likely to occur. Among the most important sources of transaction costs is the limited cognitive power of human decisionmakers. Unlike the Chicago School of law and economics, which posits the traditional concept of rational choice, Williamson asserts that rationality is bounded. Put another way, he assumes that economic actors seek to maximize their expected utility, but also that the limitations of human cognition often result in decisions that fail to maximize utility. Decisionmakers inherently have limited memories, computational skills, and other mental tools, which in turn limit their ability to gather and process information. As he demonstrates, this phenomenon, known as bounded rationality, has pervasive implications for understanding how institutions work.
Accordingly, Williamson's approach provides an analytical framework that is useful not only to economists, but also to lawyers and policymakers. Among other subjects, Williamson tackles such subjects as vertical integration, corporate governance, and industrial organization.
In sum, highly recommended. If so, you might ask, of course, why did I subtract one star? Mainly because of Williamson's unfortunate writing style. Although "The Mechanisms of Governance" is largely free of the recreational mathematics that plagues much modern economic writing, which is useful for those of us who flunked Differential Equations, it is very jargon-intensive. Worse yet, much of the jargon is self-created. All of which makes reading Williamson an effort-intensive project. Usually the cost-benefit analysis nevertheless comes out in his favor, but sometimes one puzzles out the jargon to find a rather obvious point that could have been conveyed far more simply.
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on January 1, 2004
Williamson might be a leading figure in his field, but he can't seem to organize ideas to save his life. It's almost as though he wrote the book in one stream of consciousness, and no one ever went back to check that things flowed, language made sense, etc. One of the most painful books I've ever read.
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on July 2, 2002
Ok...a well recognized teacher from aleading university...strong content...but...but...such a boring book. Really annoying to read. A lot of words made by the author (to sound more scientific?)....hey O. Williamson, next time you writte a book....use a simple style with understandable sentences like the author of "Iraationnal Exuberrance"! Really, there are lots of other books more interesting on the topic...AVOID!!!
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