The function of authority in transaction cost economics

This paper questions the transaction cost characterization of observed authority relations as efficient governance structures. Various inadequacies in the transaction cost account of work organization and the limits of firm size are traced to its neglect of the possibility that authority may be abused opportunistically. This exemplifies a more general propensity in the transaction cost literature: that of explaining economic organization in functionalist terms, with little attention to the causal mechanisms through which efficient governance structures might actually arise. Three such mechanisms are considered, but none is found to provide an adequate rationale for the imputation of efficiency to observed structures.