Basically, the process of production can be organized in two ways. In the first, you might enter into a contractual agreement with one person to grow wheat on your land, with another to harvest it, with a third to store it, and with a fourth to sell it. This method of organizing production is called contracting across markets. You negotiate a separate agreement with contractual partners and pay each of them an agreed-upon sum of money in exchange for a specific performance.


Transaction Cost Limited Liability Market Evaluation Equity Financing Business Firm 


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Suggested Readings

  1. Alchian, A. and Demsetz, H. “Production, Information Costs and Economic Organization,” American Economic Review, 62, 1972.Google Scholar
  2. Alchian, A. and Woodward, S. “The Firm is Dead: Long Live the Firm,” Journal of Economic Literature, 26, 1988.Google Scholar
  3. Easterbrook, F. and Fischel, D. “Corporate Control Transactions,” Yale Law Journal, 91, 1982.Google Scholar
  4. Jensen, M. and Meckling, W. “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure,” Journal of Financial Economics, 3, 1976.Google Scholar

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© Kluwer Academic Publishers 1990

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