Introduction to the Website by the Author

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Feb 16, 2016 — Neil Boyle

Buyers and sellers of real assets adapt to markets in ingenious and not so ingenious ways. The adaptive ingenuity knowledge that traders are required to know to achieve efficient closure remains unknown to policy analysts.  This knowledge gap has resource allocation and efficiency implications for markets and can lead to crises. The sub-prime financial crisis 2008-2010 resulted  in part from this knowledge gap.  This crisis and the confusion to explain it encourages the pursuit of deep knowledge about market exchange processes.That is the purpose of this website.

The Origin of TCE. This website proposes a new way of conducting institutional analysis, which is a general way of filling the resource gap mentioned above. The website puts forth an applied analytical framework  or applied Transaction Cost Economics. TCE is the brainchild of Nobel Laureate in Economics and Professor Emeritus of Law, Economics, and Business Administration Oliver Williamson at the Haas School of Business at Berkeley. Although this essay is not an academic treatise, it is a disciplined attempt to put to paper what is a remarkable analytical tool that can shed immense light on the economic organization of investment decisions worldwide, in particular on the analyses of the organization of infrastructure investment, a much needed resource of developing countries.

Creation of the website. I created the website for three reasons. First, more as an expression of curiosity to see how far I could go with TCE, I wanted to write about its application to my own experiences.  I thought it would be an interesting test of the framework to see what insights it could afford in the field of economic development as I experienced it working with international institutions such as the World Bank, USAID and numerous other international organizations and developing country officialdom in the public and private sectors in all of the regions of the world. Second, I was not aware of any previous work that applied TCE to the field of institutional analysis in the manner put forth here. And third, I thought there would be others with a similar interest and wanted to make my work available to them.

The material shown on my website http://www.infragov.com comes from my work of 40 years as a financial analyst and institutional specialist for the World Bank and other international institutions worldwide. ATCE is not identical to TCE, it can’t possibly be identical for a host of reasons one of which is sheer complexity of organizations; but ATCE does adhere to the principles espoused by Williamson, Coase, Alchien and Demsetz, Chang, and numerous other scholars. To illustrate the institutional contexts of applied research, I depend on case studies to do the job and on my own observations and explanations written up separately in the form of articles, case studies, technical notes, and technical tools. Because I realize this expost involvement could result in expost rationalizations on my part, I have tried to be diligent wherever possible. But nothing is perfect and I defer to the reader to judge for him or herself, and I invite the reader to respond with feedback if their judgment warrants it. Over the twelve years I spent studying and writing about TCE, I adopted some of Williamson’s specialized language, which is difficult to avoid for anyone spending a large amount of time on a single subject. To get around being perceived in another light, whenever the reader encounters quotation symbols in the text, and unless otherwise noted, they refer to the writings of Oliver E. Williamson, (or of another author,) most of which are found in one of his three primary texts (1975, 1985, and 1996), but also in several of his recent articles.

Not by any stretch of my imagination did all or even most of my writing bear fruit or satisfied readers. In fact, large parts were deemed “too dense,” too academic and abstract and a number of years went by before I was able to produce practical concepts and tools and exhibit a respectable level of literacy in the subject matter. For this, I am deeply grateful to a number of colleagues who bore with my relentless production of drafts. None of the analyses I did previously or the ones done by others that I reviewed have come anywhere near those that I analyzed using TCE as framework. Visitors to my web site hopefully will realize that TCE in combination with orthodoxy is unlike any other institutional analytical tool previously developed. TCE and economic governance hold the potential for raising questions that are too frequently glossed over and for solving institutional problems that are currently considered intractable.

Williamson and the pursuit of “deep knowledge”

My contact with Professor Williamson began eleven years ago. I first contacted him in 2004 while I was in Manila, Philippines serving as the Trade and Investment Policy Advisor for USAID Philippines. I read most of his publications by that time but I can’t attest to having gained an acceptable level of literacy until several years later. At that time he agreed to serve as an advisor to me.  Three years later, he responded to my request for the assistance of a Ph.D candidate in his program at U.C. Berkeley to serve as a peer reviewer of several papers I had written on applying TCE to my work over the years. PhD candidate Sharon Poczter helped immensely in reviewing my papers in preparation for uploading to my web site. Sharon is now an Assistant Professor of Economics at Cornell University in the Economics Department. A little over six or seven years ago, I asked Professor Williamson what kind of research he thought was important to do while I was employed as the Regional Trade Advisor to USAID for their Southern Trade Hub located in Gaborone, Botswana. His reply was “we need deep knowledge.”  I took his comment literally. Several years later after I had gained a level of competency in TCE and had proved it to Professor Williamson, he endorsed my website for conducting training workshops overseas and in the U.S. This endorsement can be seen on www.infragov.com. The application of Transaction Cost Economics (TCE) to my work spawned what I refer to previously as ATCE, or applied TCE. Both behind the border and border trade work in Sub Sahara Africa (SSA) as elsewhere in the world are suited to the work of economic governance. Investment agreements of all kinds make up the bulk of the contracts that comprise the existing political economies of the countries in SSA and indeed, the world. These contracts are complex, incomplete, unstable and for too many of them costly and unfulfilled. As an update to this piece, in 2009, Professor Williamson was honored with the Nobel Prize for Economics for his work on governance from the perspective of the “limits of the firm”.

Scientific Discipline

I use the term scientific discipline deliberately. I researched the meaning of “scientific” by referencing Neil Smith’s work on Noam Chomsky. (Smith, 1999) Williamson and Chomsky are alike in that Chomsky transformed linguistics and Williamson is transforming economic organization, and both work in fields that were quasi scientific and transformed them into real science fields. Williamson is transforming institutional analysis from an enterprise made up of goals and assumptions to one of explanation and testable predictions. A necessary condition of successful contract performance is the alignment of the parties at the time of signing and throughout execution and commissioning. Williamson’s work in the 1970s brought science into the business of institutional alignment. Noam Chomsky’s work in the 1950s revolutionized the field of linguistics, spelled the death knell for the school of behaviorism (ala the writings of Watson and Skinner), and laid the foundation for the field of cognitive science. He transformed linguistics from a so-called “classificatory science” (Hockett, ______) to one “capable to not only describe but also able to explain phenomena” and predict outcomes. (Smith, 1999). Chomsky’s work spawned testable predictions; what Williamson calls refutable hypotheses.

Smith on Chomsky puts perspective on scientific theory. Predictions and explanations go hand in hand but are not dependent on one another. An accurate prediction in the field of cognitive science does not necessarily lead to an acceptable explanation or vice versa. According to Smith (2004), “[prediction] is crucial if we want to make our theory testable, as it is only by laying itself open to potential falsification that any enterprise attains scientific status.” These features of testable predictions and refutable hypotheses have not occurred consistently in the field of traditional institutional analysis. The science described by Chomsky is of the empirical kind, which is the same as the hard sciences such as physics, or  biology. Empirical science is experimental meaning one manipulates the environment to see what happens and what happens includes the failure of the experiment.  This is the essence of refutable hypotheses.

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