Donna this morning mentioned that she heard on NPR that some American had been awarded the Nobel for his work on the boundaries of the firm. After making the mandatory Barrack Obama joke, I said that it must be Oliver Williamson, and I was right.
As it happens, I just spent a measurable portion of my summer reading Williamson and about Williamson. (I've pulled three of his books from the shelf, The Mechanisms of Goverance, The Economic Institutions of Capitalism, and The Nature of the Firm, and I highly recommend them. Williamson is an accessible writer and if you're interested in why some functions necessary to produce a product are in the firm and others aren't (and who isn't), Williamson makes for a good read.) The old saw is that an economist is anyone who calls himself an economist, but I think of Williamson as an organizational theorist. Org theory is a name more than a discipline -- psychologists, sociologists, anthropologists and economists all write org theory -- and the line between org theory and strategy (my field) is whisper-thin. If you look at organizing, you're an org theorist, unless you look at whether different ways of organizing effect performance, in which case you're in strategy.
As Prof. Williamson would be the first to admit, his work owes much to Ronald Coase. Coase first asked why organizational boundaries exist where they do? This is a more subtle question, and a more fundamental question, that first appears. The question really is why, if the market is so great at delivering the right product at the right price, does so much economic activity take place within the firm, where decisions are made bureaucratically by a hierarchy. Why have an HR department when the market could deliver the right worker for the right price? Why did Ford try to control the entire supply chain from mining the iron ore through selling the completed car, but buy it's tires from Firestone?
Coase's answer was that it must cost less to do it that way, at least in the long run. As Williamson says, "What is one to do with a 'gift' that is patently right, eludes analysis, and upsets foundations?" Essentially what org theory (and economics) did was ignore it for 50 years until Williamson based his career on building on Coase's analysis. His first book, and in some ways his best book, is Markets and Hierarchies (1975) which does a great job of combining work on information theory, organizational innovation, transaction costs and the behavioral theory of the firm.
Overall, Williamson's work allows us to make predictions about broad trends in org theory. Recent advances in information management and the collapsing costs of communicating across distances led to a predictable (and predicted) increase in outsourcing and vertical dis-integration. In other words, we're now in a period in which we should expect to see market mechanisms substituting for hierarchical/bureaucratic command and control mechanisms. Which is just another reason that the move to nationalize healthcare is a bad idea.
In fact, the work of both of this year's economic laureates suggests that nationalizing healthcare is a bad idea. (Elinor Ostrom's work suggests that the revealed preferences of local consumers does a better job of allocating scarce resources than diktats from national hierarchies.) Predictably this will be ignored by the very people who expect us to defer to the wisdom of the Peace Prize committee.