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Coase's internal vs external transaction costs is a really good way of framing lots of tradeoffs between internally production vs outsourcing trade-offs. Should
by oli5679 10y ago
Coase's internal vs external transaction costs is a really good way of framing lots of tradeoffs between internally production vs outsourcing trade-offs. Should the government run jails or pay contractors to? Should apple build its own components or ship them in from China? It depends on whether internal or external transaction costs are higher
- ghaff 10y agoOver time, various economists have argued for additional factors. For example, there's often a degree of path dependence to why a given firm might be structured in a particular way. But, yes, especially for a paper that's almost 80 years old, its core concepts hold up remarkably well and provide a useful framework to think about sourcing decisions. And it's often very clear (at least in retrospect) that those outsourcing trends that fall out of fashion over time often do so because many transaction costs associated with the outsourcing turned out to be ignored or at least underestimated. Conversely, there are countless examples today of companies using external services for things because the transaction costs associated with doing so have been so dramatically reduced.