Shortcomings of Transaction Cost Economics

I am going to assess shortcomings of Transaction Cost Economics (TCE) of Oliver Williamson. My argument is that this analysis suffers from misidentification of the relevant problem of the theory, analytical incoherence, inconsistent empirical support and methodological defects. In formulating Coase's fundamental idea, Williamson accepts an efficient equilibrium which occurs once forever, thus he can not identify the main problem of organization theory and he can not explain the evolution of organization and society as a whole. His analytical problem originates from rationality presumption. He accepts rationality is bounded and as a consequence all contracts are incomplete. But he argues that rationality is not so bounded that agents are not able to choose the best and less costly incomplete contracts via their farsightedness. Despite the well-known claim that TCE are supported by vast empirical studies, deep reviews of literature show that empirical evidence does not corroborate TCE hypothesis wholeheartedly. Even if this claim is true and TCE hypothesis and predictions are confirmed by empirical data, (1) this does not mean transaction costs are minimized and (2) deriving policy implication for improving organization and society is impossible yet. From methodological point of view, this approach assumes systems are close, and establish fix relations among variables. From this instrumental point of view reality is constrained to empirical and observable areas, and because of this view understanding unobserved reality and casual power of unobservable reality is impossible.
JEL Classification: B31, B41, D23, D80