SignifyingWilliamson's Contribution to the Transaction Cost Approach: An Agent‐Based Simulation ofCoasean Transaction Costs and Specialization

This article simulates R onald C oase's transaction cost approach to firm organizing using agent‐based modelling, and contextualizes and contrasts it with a division‐of‐labour/specialization view of the firm that C oase challenged and sought to replace. The simulation tests the firm formation process based on the different implications of transaction costs and specialization as drivers of integration, focusing especially on C oase's rejection of specialization as an explanation for integration in the firm. The results show little support for, and suggest an important shortcoming to, C oase's transaction cost theory. My findings thereby indicate a potential relationship between the specialization theory and W illiamson's T ransaction C ost E conomics, especially the latter's emphasis on co‐specialization through relationship‐specific investments, which helps shed light on TCE's significant influence in the theory of the firm literature.