Spot markets cover most transactions.
Once money is exchanged for goods, the deal is completed.
The transaction is simple: one party wants, another supplies.
There is little scope for dispute, so a written contract can be dispensed with.
If one party is unhappy, he will take his business elsewhere next time.
Spot markets are thus largely self-policing.
They are well suited to simple, low-value transactions, such as buying a newspaper or taking a taxi.
Things become trickier when the parties are locked into a deal that is costly to get out of.
Take a property lease, for instance.
A business that is evicted from its premises might not quickly find a building with similar features.
Equally, if a tenant suddenly quit, the landlord might not find a replacement straight away.
Each could threaten the other in a bid for a better rent.
The answer is a long-term contract that specifies the rent, the tenure and use of the property.
Both parties benefit.
But for many business arrangements, it is difficult to set down all that is required of each party in all circumstances.
In such cases, formal contracts are by necessity “incomplete” and sustained largely by trust.
An employment contract is of this type.
It has a few formal terms: job title, work hours, initial pay and so on, but many of the most important duties and obligations are not written down.
It is thus like a “mini-society with a vast array of norms beyond those centred on the exchange and its immediate processes”, wrote Mr Williamson.
Such a contract stays in force mostly because its breakdown would hurt both parties.
And because market forces are softened in such a contract, it calls for an alternative form of governance: the firm.
One of the first papers to elucidate these ideas was published in 1972 by Armen Alchian and Harold Demsetz.
最早阐述这些观点的论文中的一篇是由阿门·阿尔奇安(Armen Alchian 又译艾智仁)和哈罗德·德姆塞茨(Harold Demsetz)在1972年发表的。
They defined the firm as the central contractor in a team-production process.