The Human Side of Economic Organization

The assumptions of material self-interest, bounded rationality, and negative opportunism that underlie organizational economics are deficient for many managerial purposes because they underrepresent the importance of interpersonal and other nonmarket resources in human motivation. This paper adds an aspiration-level assumption called betterment that extends transaction cost analysis to include exchanges involving interpersonal resources. Implications are discussed for the efficient design of organizational boundaries, organizational subunits, and employment relations, and special attention is given to cooperation as an organizational asset.