Friday, January 19, 2018

Chris Dillow — Outsourcing: a transactions cost approach

Must-read unless you are really up on transaction cost.
As Simon says, companies that win tenders by bidding low have an incentive to cut quality. The question is: is it possible to stop this happening?
It’s here that transactions cost economics enters. This perspective began with Ronald Coase’s famous essay, The Nature of the Firm (pdf). Whether we should do a job in-house or through the market depends upon the comparative costs. And, he said, “there is a cost of using the price mechanism.”
In our context, this cost is the difficulty or even impossibility of writing contracts which ensure good quality provision....
Stumbling and Mumbling
Outsourcing: a transactions cost approach
Chris Dillow | Investors Chronicle

1 comment:

Noah Way said...

Another demonstration of the wrong value system. The cost / profit of a product / service is vastly more important than its quality and impact on health, environment, etc.

Until this is reversed nothing is going to change. So nothing is going to change.

I'm not a pessimist, I'm a cynical optimist. My cup is half full ... of shit.