Title: Williamson meets Dr. Pangloss: on transaction cost-based explanations

Authors: Kalevi Kyläheiko

Addresses: School of Business, Lappeenranta University of Technology, Box 20, FI-53851 Lappeenranta, Finland

Abstract: This article examines the logic of explanation used in transaction cost analysis (TCA) when analysing issues that relate to the boundaries of the firm, such as outsourcing, the rise of partnerships or organising purchases within supply chains. Surprisingly, even if there are many empirical studies dealing with transaction cost issues there are very few attempts to closer scrutinise the methodological foundations of the explanatory mode used. Nobel Prize winner Oliver Williamson himself characterises the explanatory mode used in his models as functionalist. We will tackle this claim and explicate some problems relating to this interpretation. The connections to the famous Panglossian problem ('we are living in the best of all possible worlds') are explicated. Finally, some suggestions are given to get rid of the Panglossian problem in the context of TCA. As will be shown they presuppose steps towards a more evolutionary way of reasoning.

Keywords: evolutionary thinking; transaction costs; explanation; methodology; functionalist explanation; optimum explanation; transaction cost analysis; TCA; outsourcing; partnerships; procurement; supply chain management; SCM.

DOI: 10.1504/IJPM.2015.070740

International Journal of Procurement Management, 2015 Vol.8 No.4, pp.383 - 395

Published online: 23 Jul 2015 *

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