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[Williamson, O.]

Williamson, O. E. (2002). 'The Lens of Contract: Applications to economic development and reform'. Forum 2 The Institutional Economics Approach to Aid Effectiveness, Session on the Science of Contracts. Presented: 25 February 2002, Final: 17 April 2002. Washington, D.C.

"Politics is a structure of complex exchange among individuals, a structure within which persons seek to secure collectively their own privately defined objectives that cannot be efficiently secured through simple market exchanges" (Buchanan 1987: 296)

John R. Common's prescient statement on the nature of the economic problem provides the unifying theme for the study of governance. Thus Commons advised that "the ultimate unit of activity ... must contain in itself the three principles of conflict, mutuality, and order. This unit is the transaction" (1932: 4). Not only does transaction cost economics take the transaction to be the basic unit of analysis, but governance is the means by which to infuse order, thereby to mitigate conflict and realize mutual gain. (5)

More generally, students of development and reform should be leery of nostrums. There is no single, best, all-purpose way to organize (e.g., markets or hierarchies) and there is no single, best, all-purpose way to effect reform. Instead, contracting is done in a conditional way - in which students of development and reform are armed with deep knowledge about the attributes of each institutional environment and each "transaction" and the relevant political and economic remediableness constraints that bear on both. (19)

Unit of Analysis

• Is it better to think of the relevant unit as the "deal," which may be a related set of transactions?
• Or is the "project" the relevant unit?
• Might the "industry" be the appropriate unit of analysis for purposes of orchestrating the sequence of reform (Arrow 2000)?
• Who is contracting with whom?
• If learning is part of the exercise, how is that brought out?
• Do these units have comparative institutional significance?