Part 1 - AL-Tax

International Taxation HandbookThey include resources used to protect and capture (appropriate without permission)property rights, plus any deadweight costs that result from potential or real protectingand capturing. The need for establishing and maintaining property rights iscaused by two basic principles of human behavior: Bounded rationality and opportunism(Williamson, 1985, 1998).As proposed by Williamson (1999), the concept of governance choice can notonly be deployed for the make-or-buy decision, but also for public policy design. Inhis model (see Figure 6.2), unassisted market (M), unrelieved hybrid (X U ), hybridcontracting (X C ), private firm (F), regulation (R), and public agency (B for bureau) aredistinct governance modes for coordinating exchange between transaction partners.In the traditional TCE perspective, M, X U , and X C are governance modes of externalcoordination, whereas F, R, and B refer to internal coordination. TCE poses the question– and seeks to answer – whether a given exchange problem (transaction) shouldbe coordinated in either governance mode. In the case of hierarchical, internal governance,this would be F (within a firm), R (through regulation), or even B (withinthe public agency), though feasible alternatives of external governance exist and canbe described (Williamson, 1999). Features such as forming incentives, administrativecontrol, autonomous behavior, enforcement, and safeguarding against hazardsdetermine the choice of governance.The basic mechanism of governance choice in TCE can be seen in Figure 6.2.With increasing contractual hazards (h) and the need for contractual safeguards (s),h = 0M = Unassisted marketX U = Unrelieved hazards = 0h > 0MarketsupportX C = Hybrid contracting(e.g. APA)s > 0PrivateF = Private firmAdministrativesupportR = RegulationPublicB = Public agency (bureaucracy)(e.g. ‘standard’ tax base identificationFigure 6.2 Contracting schema extended. Adapted from Williamson, O.E. (1999). Public andPrivate Bureaucracies: A Transaction Cost Economics Perspective. Journal of Law, Economics,and Organization, 15(1):306–342, by permission of Oxford University Press126