This paper provides a synthesis of transaction cost economics and institutional theory. It reviews each of these approaches and provides suggestions on how these perspectives might be broadened via this synthesis. It presents an illustrative model of organization theorizing that combines relevant aspects of transaction cost theory and institutional theory in order to strengthen the explanatory power of both. The model explores conditions under which one or both theories may be most appropriate in explaining decision behavior, focusing on two important situational factors--the degree of ambiguity surrounding transaction cost analyses and the organization’s temporal survival orientation.
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