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Sumantra Ghoshal on Management: A Force for Good by Gita Piramal, Julian Birkinshaw

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Chapter 8. Bad for practice: A critique of the transaction cost theory

<authorgroup>Sumantra Ghoshal and Peter Moran</authorgroup>

In this paper, Sumantra and Peter Moran put forward a detailed and thoughtful critique of transaction cost theory, one of the most well-known bodies of theory in organizational economics. Transaction cost theory assumes that individuals are self-interested and opportunistic in nature, and they will cheat the system if they can. It implies managers should put in place control systems and legal mechanisms to guard against such behaviour. Unfortunately, such systems often encourage the very behaviours that they are trying to curb, and as a side-effect drives out such desirable attributes as initiative and cooperation. ...

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