Read the interview

Interview transcript

[Oliver Williamson] Hello?

[Adam Smith] Oh, good morning. Professor Williamson, my name is Adam Smith. I’m calling from the Nobel Foundation website in Stockholm, Sweden.

[OW] Oh yes.

[AS] Where, of course, it has just been announced that you have been awarded this year’s Sveriges Riksbank Prize in Economic Sciences.

[OW] Yes.

[AS] Congratulations, of course.

[OW] Oh, thank you very much.

[AS] We have a tradition of recording extremely short telephone interviews with all new Laureates immediately following the announcement so, despite the early hour, would you mind if we spoke for just a very few minutes?

[OW] Uh, fine.

[AS] Thank you. So, first of all, I imagine that the phone call has woken you up because it’s 4am there?

[OW] That’s correct.

[AS] Was it a tremendous surprise?

[OW] Well, you know, you’re sort of aware that you’re on these lists but it was a very pleasant surprise and I’m deeply grateful.

[AS] The citation for the award reads “for his analysis of economic governance, especially the boundaries of the firm,” and, broadly, you work on the question of why firms exist. Would that be correct to say?

[OW] Well, I work on that. But, more generally, what my work is, and this is in a large measure a result of the graduate training I had when I was a student at Carnegie Tech in the early 1960s, is it’s an interdisciplinary effort to draw economics and organization theory together, to try to understand the boundaries of the firm and a whole set of practices that firms engage in, and more generally to understand complex economic organizations, of both the private and public sector kinds.

[AS] An analysis of why firms can accomplish some transactions better than the markets can accomplish them?

[OW] Well, that’s true. But it also has a lot of public policy ramifications for antitrusts and regulations and for trying to advance some of the ideas of people that I was a student of, or deeply influenced by, who included Kenneth Arrow and Herbert Simon and Ronald Coase and others who brought these issues to the fore. And I saw that there was a research opportunity to push them ahead and give them more operational content. And, as they say, it does have a lot of ramifications for public policy.

[AS] And, one of the things that stressed about your work is that it provides for empirical testing of the theories you produce that …

[OW] That’s exactly right. And, that’s been an objective of mine right along, but I owe enormous debts to my students who were persuaded on the merits of this approach and many of whom who undertook to engage in empirical testing and broaden the reach of it. And, it’s … I have no doubt that the economics of governance is influential in significant measure because it does speak to real world phenomena and invites empirical testing and much of it has been corroborated.

[AS] And is there any particular example of a recommendation that has come out of your work that, in the public policy field for instance, that you would like to cite?

[OW] To try to understand that all feasible forms of organization are flawed, and that we need to understand the trade-offs that are going on, the factors that are responsible for using one form of governance rather than another, the strengths and weaknesses that are associated with each of them, and to fashion public policy, as they say, with respect to antitrust. And that project, one thing leads to another, it relates to aspects of finance with reference to the uses of debt and equity, it relates to corporate governance. It is … It adopts a different orientation than the standard one which is to look at the firm and market organization in significant measure from a technological point of view. I look at firm and market organization from a contractual point of view and …

[AS] You’ve used this phrase in the past; the ‘lens of contract’ …

[OW] That’s correct.

[AS] So you view the organization through the contracts that the organizations are generating?

[OW] That’s correct. The market contracts are one way of accomplishing … Let’s say the make-or-buy decision: you decide to buy. Contracting within the firm and with the … [inaudible] … the governance structures that firms provide is another alternative. And, it has as they say … [inaudible] … for coordination purposes, but it has limitations in incentive respects. And there’s a series of, as they say, strengths and weaknesses that are associated with firms, with markets, with intermediate forms of the hybrid kind that fall between them. It actually, and I mentioned to you earlier that it was an interdisciplinary project that combines economics and organizational theory, … it also appeals to aspects of the law, mainly contract law, and tries to draw these together and demonstrate the, well, a new way of trying to interpret complex economic organization.

[AS] Thank you. Thank you very much indeed.

[OW] OK.

[AS] It was a great pleasure to speak to you, congratulations and thank you very much.

[OW] Bye.

[AS] Thank you, bye, bye.

[OW] Bye, bye.

Did you find any typos in this text? We would appreciate your assistance in identifying any errors and to let us know. Thank you for taking the time to report the errors by sending us an e-mail.