Organizing Around Transaction Costs: What Have We Learned and Where Do We Go from Here?

Transaction cost economics has long been a key perspective on the organization of economic activity. Over the past three decades, numerous studies have examined transaction cost economics' assertion that the costs surrounding exchanges, called transaction costs, direct managers' decisions about whether to organize activities via market, hybrid, or hierarchy, and whether organizing this way enhances performance. By aggregating the results of 143 studies via meta-analysis, we take a step toward better understanding the extent to which transaction cost economics' core predictions are supported and whether more recent theoretical developments shed additional light on organizing decisions. Our results reveal that transaction cost economics explains organizing decisions and resulting performance, but the size of the effects reveals that there is still much to learn. Overall, our findings suggest that transaction cost economics must be augmented with other perspectives to explain how firms organize economic activity.