Editing Transaction cost (section)

== Differences from neoclassical microeconomics ==

Williamson argues in ''The Mechanisms of Governance'' (1996) that Transaction Cost Economics (TCE) differs from [[neoclassical economics|neoclassical microeconomics]] in the following points:

{| class="sortable wikitable"
! Item !! Neoclassical microeconomics !! Transaction cost economics
|-
| ''Behavioural assumptions''<ref>{{Cite journal|last=Pessali|first=Huascar F.|date=2009-09-01|title=Metaphors of Transaction Cost Economics|journal=Review of Social Economy|volume=67|issue=3|pages=313–328|doi=10.1080/00346760801933393|issn=0034-6764|citeseerx=10.1.1.322.614|s2cid=18240827}}</ref> ||Assumes [[hyperrationality]] and ignores most of the hazards related to opportunism || Assumes [[bounded rationality]]
|-
| ''Unit of analysis''|| Concerned with composite goods and services|| Analyzes the transaction itself
|-
| ''Governance structure''||Describes the firm as a [[production function]] (a technological construction) || Describes the firm as a governance structure (an organizational construction)
|-
| ''Problematic property rights and contracts''|| Often assumes that property rights are clearly defined and that the cost of enforcing those rights by the means of courts is negligible || Treats property rights and contracts as problematic
|-
| ''Discrete structural analysis'' || Uses continuous marginal modes of analysis in order to achieve second-order economizing (adjusting margins)|| Analyzes the basic structures of the firm and its governance in order to achieve first-order economizing (improving the basic governance structure)
|-
| ''Remediableness'' ||Recognizes [[profit maximization]] or [[Cost-minimization analysis|cost minimization]] as criteria of efficiency|| Argues that there is no optimal solution and that all alternatives are flawed, thus bounding "optimal" [[efficiency]] to the solution with no superior alternative and whose implementation produces net gains
|-
| ''Imperfect Markets''||Downplays the importance of imperfect markets || [[Robert Almgren]] and [[Neil Chriss]], and later [[Robert Almgren]] and [[Tianhui Li]], showed that the effects of transaction costs lead portfolio managers and options traders to deviate from neoclassically optimal portfolios extending the original analysis to derivative markets.<ref>R.Almgren and N.Chriss, "Optimal execution of portfolio transactions" J. Risk, 3 (Winter 2000/2001) pp.5–39</ref><ref>{{cite journal|
    author = Robert Almgren|
    author2= Tianhui Li|
    title = Option Hedging with Smooth Market Impact|
    journal = Market Microstructure and Liquidity|
    year = 2016 |
    volume = 2|
    pages= 1650002|
    doi= 10.1142/S2382626616500027|
 author-link= Robert Almgren|
 author2-link= Tianhui Li}}</ref> 
|}
The transaction costs frameworks reject the notion of [[Instrumental and value rationality|instrumental rationality]] and its implications for predicting behavior. Whereas instrumental rationality assumes that an actor's understanding of the world is the same as the objective reality of the world, scholars who focus on transaction costs note that actors lack perfect information about the world (due to bounded rationality).<ref>{{Cite journal|last=North|first=Douglass C.|date=1990-10-01|title=A Transaction Cost Theory of Politics|url=https://doi.org/10.1177/0951692890002004001|journal=Journal of Theoretical Politics|language=en|volume=2|issue=4|pages=355–367|doi=10.1177/0951692890002004001|s2cid=154451243|issn=0951-6298}}</ref>