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Journal of Economic Behavior and Organization 1 (1980) 5-38. © North-Holland

THE ORGANIZATION OF WORK A Comparative Institutional Assessment* Oliver E. W I L L I A M S O N
University of Pennsylvania, Philadelphia, PA 19104, USA
Received January 1979, final version received August 1979 Sociologists, radical economists, and others who claim that hierarchical modes of organization are explainedby power rather than efficiency neglect transaction costs in reaching this conclusion. This is understandable, since neoclassical economics also neglects transaction costs. But it is also regrettable, since the transaction costs that arise when intermediate product is transferred across techiaologically separable stages of production depends crucially on organizational structure. A microanalyticassessment of alternative modes of organization entails (1) an identification of the relevant transaction cost dimensions for assessing performance, (2) a description of the organizational and operating properties of alternative modes, and (3) a comparative evaluation of alternative modes in terms of their transaction cost attributes. Transaction costs drive organizational outcomes in considerabledegree.

1. Introduction The organization of work is of long-standing interest to and elicits frequent commentary by academics, social reformers, and men of affairs (politicians, businessmen, labor leaders, bureaucrats). Although all of the social sciences have something to contribute, none would appear to have a greater stake in the issues than economics. In fact, however, the interests ofeconomists have been of a selective kind. Partly this is because questions regarding alternative modes of internal organization do not arise naturally within, and in some respects are even alien to, the neoclassical tradition, t Among contemporary economists, it has mainly been those who are associated with the New Left that have pressed the issues. What appears to be a consensus position within theNew Left has been summarized by Bowles and Gintis (1976, ch. 3).
*This paper has benefited from the support of a Guggenheim Fellowship, a grant from the National Science Foundation, and the support of the Center for the Study of Organizational Innovation. Helpful comments on earlier versions by Richard Nelson and Neal Gross are gratefully acknowledged. 1Aaron Gordon's (1976, p. 3) remarks in his1975 Presidential Address to the American Economic Association suggest as much: '... we should not ignore the extent to which rigorous formulations of the theory of the firm have had to be relaxed in order to obtain useful results in empirical work. N o r . . . should we forget the extent to which conventional theory ignores how and why work is organized within the firm and establishment in theway that it is'. Also, see footnote 3, infra.
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O.E. Williamson, The organization of work

The leading features of this consensus are reviewed in section 2. The argument of special interest is whether, as alleged, hierarchical modes of organization lack redeeming efficiency attributes. Assessing this is facilitated by (1) focussing on a specific production process, (2) expresslydescribing alternative organizational modes, across which the degree of hierarchy varies, for accomplishing the task, and (3) evaluating each mode with respect to a common set of performance attributes. Transaction Costs, which have been relatively neglected in the recent literature, turn out to be central to this exercise. These efficiency issues are addressed in sections 3 and 4. Some of thehistorical evidence bearing on the evolution of work modes and issues of alienation are briefly examined in section 5. Concluding remarks appear in section 6. Very briefly, I argue that the New Left has a legitimate complaint that neoclassical economics makes little useful contact with organization of work issues. The principal reason for this is that the neoclassical firm is characterized as a...