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<meta content="This paper examines the institutional arrangements that develop when the risks of opportunism and other contributors to transaction costs are high but transactions are nevertheless necessary for economic efficiency. Williamson's famous distinction between markets and hierarchies is inadequate because under certain circumstances markets may be hierarchies that are deliberately managed to reduce levels of transaction costs and undertake strategic objectives to improve their competitiveness with other hierarchies, including other markets. As transaction costs are production costs for these markets, careful management increases the efficiency of the markets. As a result, some important markets are also hierarchies that are structured in ways that are analogous to firms precisely in order to reduce their costs of operation, including the transaction costs that arise from using them.
This paper looks at the evolution of the membership rules of stock exchanges, a select but important group of markets that have been consciously constructed over long periods and with frequent modifications because of environmental change and learning by participants. Stock exchanges belong to a category that also includes insurance exchanges such as Lloyd's, and various markets involving shipping and world trade. These are markets in which the use of up-to-date information is especially important because conditions may alter quickly and in which risk, uncertainty, and the potential for opportunistic behaviour are factors that affect their operations in significant ways. Their productivity as markets is (or historically has been) so high that their replacement by hierarchies is virtually unthinkable because they allow for exchanges that could not otherwise be accomplished smoothly. As a result, when transaction and agency costs arise in such markets, responses have concentrated on finding mechanisms for reducing them to tolerable levels rather than on abandoning transactions altogether through the internalization of activities.
The early sections of the paper are devoted to an examination of the logic of constructed markets, while the later sections examine how this logic worked out in the case of the London, New York and Sydney Stock Exchanges in the nineteenth and early twentieth centuries." name="eprints.abstract" />
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<meta content="Ames, Edward and Rosenberg, Nathan (1965), "The Progressive Division and Specialization
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Williamson, Oliver E. (1993), "Calculativeness, Trust, and Economic Organization", Journal
of Law and Economics 36, 453-486. " name="eprints.referencetext" />
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<meta content="This paper examines the institutional arrangements that develop when the risks of opportunism and other contributors to transaction costs are high but transactions are nevertheless necessary for economic efficiency. Williamson's famous distinction between markets and hierarchies is inadequate because under certain circumstances markets may be hierarchies that are deliberately managed to reduce levels of transaction costs and undertake strategic objectives to improve their competitiveness with other hierarchies, including other markets. As transaction costs are production costs for these markets, careful management increases the efficiency of the markets. As a result, some important markets are also hierarchies that are structured in ways that are analogous to firms precisely in order to reduce their costs of operation, including the transaction costs that arise from using them.
This paper looks at the evolution of the membership rules of stock exchanges, a select but important group of markets that have been consciously constructed over long periods and with frequent modifications because of environmental change and learning by participants. Stock exchanges belong to a category that also includes insurance exchanges such as Lloyd's, and various markets involving shipping and world trade. These are markets in which the use of up-to-date information is especially important because conditions may alter quickly and in which risk, uncertainty, and the potential for opportunistic behaviour are factors that affect their operations in significant ways. Their productivity as markets is (or historically has been) so high that their replacement by hierarchies is virtually unthinkable because they allow for exchanges that could not otherwise be accomplished smoothly. As a result, when transaction and agency costs arise in such markets, responses have concentrated on finding mechanisms for reducing them to tolerable levels rather than on abandoning transactions altogether through the internalization of activities.
The early sections of the paper are devoted to an examination of the logic of constructed markets, while the later sections examine how this logic worked out in the case of the London, New York and Sydney Stock Exchanges in the nineteenth and early twentieth centuries." name="DC.description" />
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<h1 class="ep_tm_pagetitle">Transaction costs, trust, and the structuring of markets</h1>
<p style="margin-bottom: 1em" class="not_ep_block"><span class="person_name">Robertson, Paul L.</span> (2007) <xhtml:em>Transaction costs, trust, and the structuring of markets.</xhtml:em> In: Asia-Pacific Economic and Business History Conference, 12-14 Feb 2007, Sydney.</p><p style="margin-bottom: 1em" class="not_ep_block"></p><table style="margin-bottom: 1em" class="not_ep_block"><tr><td valign="top" style="text-align:center"><a onmouseover="EPJS_ShowPreview( event, 'doc_preview_1862' );" href="http://eprints.utas.edu.au/1455/1/PR21.pdf" onmouseout="EPJS_HidePreview( event, 'doc_preview_1862' );"><img alt="[img]" src="http://eprints.utas.edu.au/style/images/fileicons/application_pdf.png" class="ep_doc_icon" border="0" /></a><div class="ep_preview" id="doc_preview_1862"><table><tr><td><img alt="" src="http://eprints.utas.edu.au/1455/thumbnails/1/preview.png" class="ep_preview_image" border="0" /><div class="ep_preview_title">Preview</div></td></tr></table></div></td><td valign="top"><a href="http://eprints.utas.edu.au/1455/1/PR21.pdf"><span class="ep_document_citation">PDF</span></a> - Requires a PDF viewer<br />214Kb</td></tr></table><div class="not_ep_block"><h2>Abstract</h2><p style="padding-bottom: 16px; text-align: left; margin: 1em auto 0em auto">This paper examines the institutional arrangements that develop when the risks of opportunism and other contributors to transaction costs are high but transactions are nevertheless necessary for economic efficiency. Williamson's famous distinction between markets and hierarchies is inadequate because under certain circumstances markets may be hierarchies that are deliberately managed to reduce levels of transaction costs and undertake strategic objectives to improve their competitiveness with other hierarchies, including other markets. As transaction costs are production costs for these markets, careful management increases the efficiency of the markets. As a result, some important markets are also hierarchies that are structured in ways that are analogous to firms precisely in order to reduce their costs of operation, including the transaction costs that arise from using them.
This paper looks at the evolution of the membership rules of stock exchanges, a select but important group of markets that have been consciously constructed over long periods and with frequent modifications because of environmental change and learning by participants. Stock exchanges belong to a category that also includes insurance exchanges such as Lloyd's, and various markets involving shipping and world trade. These are markets in which the use of up-to-date information is especially important because conditions may alter quickly and in which risk, uncertainty, and the potential for opportunistic behaviour are factors that affect their operations in significant ways. Their productivity as markets is (or historically has been) so high that their replacement by hierarchies is virtually unthinkable because they allow for exchanges that could not otherwise be accomplished smoothly. As a result, when transaction and agency costs arise in such markets, responses have concentrated on finding mechanisms for reducing them to tolerable levels rather than on abandoning transactions altogether through the internalization of activities.
The early sections of the paper are devoted to an examination of the logic of constructed markets, while the later sections examine how this logic worked out in the case of the London, New York and Sydney Stock Exchanges in the nineteenth and early twentieth centuries.</p></div><table style="margin-bottom: 1em" cellpadding="3" class="not_ep_block" border="0"><tr><th valign="top" class="ep_row">Item Type:</th><td valign="top" class="ep_row">Conference or Workshop Item (Paper)</td></tr><tr><th valign="top" class="ep_row">Keywords:</th><td valign="top" class="ep_row">Transaction costs; markets; hierarchies; stock exchange; constructed markets; trust</td></tr><tr><th valign="top" class="ep_row">Subjects:</th><td valign="top" class="ep_row"><a href="http://eprints.utas.edu.au/view/subjects/340301.html">340000 Economics > 340300 Economic History and History of Economic Thought > 340301 Economic History</a><br /><a href="http://eprints.utas.edu.au/view/subjects/340213.html">340000 Economics > 340200 Applied Economics > 340213 Economic Development and Growth</a></td></tr><tr><th valign="top" class="ep_row">ID Code:</th><td valign="top" class="ep_row">1455</td></tr><tr><th valign="top" class="ep_row">Deposited By:</th><td valign="top" class="ep_row"><span class="ep_name_citation"><span class="person_name">Ms Sophie Jerrim</span></span></td></tr><tr><th valign="top" class="ep_row">Deposited On:</th><td valign="top" class="ep_row">25 Jul 2007</td></tr><tr><th valign="top" class="ep_row">Last Modified:</th><td valign="top" class="ep_row">09 Jan 2008 02:30</td></tr><tr><th valign="top" class="ep_row">ePrint Statistics:</th><td valign="top" class="ep_row"><a target="ePrintStats" href="/es/index.php?action=show_detail_eprint;id=1455;">View statistics for this ePrint</a></td></tr></table><p align="right">Repository Staff Only: <a href="http://eprints.utas.edu.au/cgi/users/home?screen=EPrint::View&eprintid=1455">item control page</a></p>
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