What is the significance of Oliver Williamson's Nobel prize? This short article is an attempt to answer this question succinctly. First, he demonstrated when it is more efficient for a firm to make a component in-house rather than outsource it to another firm. Second, his work was path breaking because economic research at the time was largely fixated on market transactions and treated firms as black boxes of production. Williamson's work made economic scholars realize the need to analyze governance and incentives within and between firms in order to better understand how efficiency can be maintained in a capitalist society. Third, his original insights and the research area he pioneered—transaction costs economics—offer clear guidance for business strategy and public policy.
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