· November 10, 2018

One of the other ideas from Transaction Cost Economics I liked was the remidiableness criterion, due to Williamson. The core question in TCE is why do firms staff certain work internally while sourcing other work from the market?

When considering different strategies for organizing, it’s easy to look at a heirarchical organization (within a firm) in the real world, and compare it to an idealized market organization. Economists do this quite a lot. 

The remidiableness criterion says that we should focus on failings which can be remidiated. We should include the real-world constraints and compare different strategies based on how they could be implemented given the world we have, rather than idealized conditions. It also means if you can’t devise a better organization strategy, given the constraints, the existing one should be presumed efficient. 

I like this idea, as given a sufficiently competitive environment it seems likely that existing organizational forms are efficient - which means that if other organizational forms are preferred for larger (social) reasons, there needs to be an intervention to change the environment the organizations operate in.