A transaction cost approach to contracting in two industries : offshore oil supply and primary copper
This thesis presents two case studies in 'transaction cost economics' (i.e. that branch of economic theorizing originating with Coase in the 1930s and more recently being further developed by, particularly, Oliver Williamson at Yale University). A justification for the case studies is the call, by several influential economists, for economic theory to be applied to actual market mechanisms. The single most important prediction derived from the transaction cost paradigm is that industries will be organized so as, ceteris paribus, to minimize the cost of making transactions. The attributes of transactions made in the business of offshore oil gathering and in the international copper industry are described, and we see whether the governance structures in which these transactions occur conform with the predictions of the transaction cost paradigm. Special attention is paid to the matter of the transactional efficacy of the markets which exist between the transactors in the relevant markets. New data is gathered on the extent of vertical decomposition by oil companies and on the global organization of the offshore oil supply industry. The main organizational forms of the international copper industry are found to accord with the predictions of the transaction cost paradigm. Theoretical contributions are made on the economics of the invited tender-bid system as operated by the oil companies, the globalization of the offshore oil supply industry and the optimization of storage costs in a market environment marked by plan dis-coordination between arms length transactors. The invited tender-bid system is shown to possess the dual properties of transactional and Pareto efficiency. The market in refined copper is shown to provide for (near) optimal storage. There is also discussion of the intermediate governance structures which exist in the two industries. Generally, the transaction cost paradigm is verified.