Transaction Cost Entrepreneurship

Abstract: Transaction cost economics, like other approaches to firms, contracts, and organizations, tends to focus on the characteristics of transactions already in place. Questions about origins and emergence are central to entrepreneurship research, but have not been treated systematically within the larger field of comparative economic organization. This paper explores how constructs, theories, and approaches from the entrepreneurship literature can inform TCE and other theories of organization, and vice versa. First, entrepreneurs can be modeled as the speculating and coordinating agents who organize activities to economize on transaction costs, particularly in a world of Knightian uncertainty and incomplete contracts. Second, the concept of entrepreneurial judgment as ultimate decision-making over the deployment of heterogeneous resources gives new answers to the classic Coasean questions of firm existence, boundaries, and internal organization. Third, TCE’s careful treatment of alternative institutions of governance challenges the entrepreneurship literature to move beyond its current emphasis on the cognitive acts of creative individuals to investigate more systematically how entrepreneurs acquire, deploy, and control productive resources to put entrepreneurial ideas into practice.