Tag: TCE

Senior Experience Reading Option

As you know, or should know, departments must now offer a Senior Experience to fortify those of you who will be heading from this world into the next one.   Here in economics, we actually provide you with two options.  One is to augment a research paper,* and the other is to participate in a reading and discussion seminar — the Reading Option.

Suggested Cover

For this year’s Reading Option, we will be taking on The Nature of the Farm: Contracts, Risk, and Organization in Agriculture by Doug Allen and Dean Lueck.  Allen & Lueck — students of the great Yoram Barzel — lay out a transaction cost theory of farm organization, and then test this theory using mounds and mounds of data on farm contracts that they obtained from far and wide. Of central interest to Allen & Lueck is why, despite massive technological change, family ownership remains the dominant ownership form for planting and harvesting crops in America.  Yes, you read that right.

We are going to learn a lot about North American agriculture.

Our group will meet Tuesdays 2:30-4:20 or thereabouts.  Students should plan to read and think hard about one or two chapters per week, and will be responsible for writing a book review or some other short, crisp essay related to the course material.  If you are interested in sitting in without taking on the entire “Experience,” you should see me.  Sophomore and Junior majors are certainly welcome.

Co-author Doug Allen will be on campus Thursday, February 14 to discuss his work and help you with your own, so mark that on your calendar.  He will also give a public lecture as part of the Economics Colloquium.

Those of you taking the course can check out the course Moodle here.

For our first meeting on Tuesday, January 8, you should read the first two chapters, make sure to tackle the “economics vocabulary,” and be prepared to respond to the Fun Facts and Questions for Discussion.

Here is a selection of the vocabulary for our first meeting:

  • Stylized fact
  • Vertical integration, vertical coordination (see p. 184 if you need an example)
  • Principal-Agent Model (Agency Model)
  • Shirking
  • Moral hazard
  • Risk aversion, risk neutrality
  • Residual claimant
  • Endogeneity

If you don’t know what these mean, you might try asking someone.  If that doesn’t work, Google is your friend, as they say. I find the New Palgrave Dictionary of Economics to be an excellent resource (available to on-campus IP addresses).

See you in January.


*See Professor Finkler for details.

Happy Birthday Professor Coase

The intellectual founder of transaction cost economics, Ronald Coase, turns 100 today.  Coase is best known for two papers: “The Nature of the Firm” in 1937 and “The Problem of Social Cost” in 1960.  Both are about the importance of transaction costs.  The former shows that without transaction costs the firm doesn’t matter, and this serves as the starting point for Econ 450.  As The Economist‘s Schumpeter blog points out:

Today most people live in a market economy, and central planning is remembered as the greatest economic disaster of the 20th century. Yet most people also spend their working lives in centrally planned bureaucracies called firms.

Certainly, this has had a profound impact on organizational theory and industrial organization.

The latter paper shows that without transaction costs the law doesn’t matter, the foundation of the so-called Coase Theorem. , and this idea figures prominently in Econ 280. Indeed, the latter is one of the most heavily cited papers in all of social sciences, and is the centerpiece of the law & economics movement.

Coase also wrote the very provocative“The Market for Goods and the Market for Ideas,” arguing that the case for product regulation is no stronger than the case for regulating ideas — a good discussion starter to say the least.

For a pretty good portrait of Coasian ideas, check out his interview with Reason Magazine from back in the day.

The Nobel-ist Triumph?

The economics Nobel selection committee evidently isn’t the only body impressed with Oliver Williamson’s Transaction Cost Economics (TCE). Personally, I have always liked transaction cost economics because I found the construct consistent with my own intuition.  Put succinctly, watch out because someone might be looking to screw you over.

Evidently, the students in my Economics 450, Economics of the Firm course, share my enthusiasm.

Here is a full accounting of their written responses from this term’s course evaluations:

Q:  What was the best topic in this course?


TCE! Williamson changed my life :-)


I love Williamson’s TCE forever and ever. I also really liked talking about McDonalds. I dont think the Innovation and Econ was particulary central to the class but I really enjoy it too!