Mechanisms of Governance: The Fascinating World of Hybrids

By Claude Ménard*

Among so many contributions of Oliver Williamson, a major one has been the opening of economics to the diversity and richness of solutions for organizing transactions. However, from Markets and Hierarchies (1975) to The Economic Institutions of Capitalism (1985) and the final bouquet of the Mechanisms of Governance (1996), there is a significant deepening of Williamson’s perspective on the scope of this diversity.

As the title clearly indicates, the 1975 book focused on the two polar modalities of ‘Markets’ and ‘Hierarchies’, with the development of the Coasian concept of transaction costs to investigate the now famous trade-off between ‘make’ or ‘buy’. In response to Richardson (1972) who emphasized the continuum of arrangements between these polar cases, Williamson (1975: 109) stated that “…focusing on the significant differences between normal sales [that is, markets] and hierarchical relations is useful”. At the time, he considered the exploration of these polar cases as the way to properly assess the properties of ‘intermediate forms of contracting,’ which he also identified as ‘ambiguous categories’.

The Economic Institutions of Capitalism marks a significant evolution, with a much more positive approach to ‘non-standard modes of organization.’ Chapter 3 is a landmark in that respect, with explicit reference to “hybrid transactions (franchising, joint ventures, other forms of nonstandard contracting)” and the plain statement that “Whereas I was earlier of the view that transactions of the middle kind were difficult to organize and hence very unstable [ …] I am now persuaded that transactions in the middle range [between the two extremes of markets and hierarchies –note from CM] are much more common.”(1985: 83).

However, it was not until a 1991 article, later integrated as chapter 4 of the Mechanisms of Governance and presented as “an ambitious effort to operationalize transaction cost economics” that Williamson paid full attention to the nature and characteristics of hybrids. This shift in focus to include hybrids expresses so well his position as a researcher, both his honesty, his openness to new ideas, and his commitment to understanding real world phenomena. Making these arrangements an integral part of his effort to model organizational forms and explicitly connecting his analysis to the key concepts that define the golden triangle of New Institutional Economics (transactions costs, property rights, and contracts), he provided an analytical framework to many of us already working on non-standard arrangements but lacking the conceptual tools to push the investigation further.

Although we live with (and depend on) hybrid forms of organizations for so many activities, the economic literature long ignored their existence. Among his major contributions, this is another domain that Williamson opened to full-fledged economic analysis. Although I had known him before, I had the great opportunity of spending my first long visit to Berkeley (in 1991-1992) at the time Williamson was exploring more systematically these ‘non-standard’ arrangements. Extensive discussions during that time in Berkeley were followed by many others over the years, often overlooking San Francisco with a glass of wine in the benevolent presence of his wife, Dolores. I and so many scholars who benefited from this intellectual environment and above all from the developments of transaction cost economics owe Oliver Williamson an enormous debt of gratitude.


*Claude Ménard is Professor of Economics at the Université de Paris (Panthéon-Sorbonne) and Centre d’Economie de la Sorbonne (CES). He served as President of SIOE (then called ISNIE) 2001-2.