Understanding Theoretical Aspects of Outsourcing: Common Features and Discrepancies Between Transaction Costs Economics and Contractual Incompleteness

Abstract

Outsourcing is a phenomenon regularly explored through two theories: transaction cost economics and incomplete contract theory. The second approach is frequently seen as an extension of the first but is it right to do so? Could the theory of incomplete contracts be regarded as a "2.0" transaction cost economics? This article addresses this question through the main theoretical axes of renowned researchers, notably by being awarded a Nobel Prize. While transaction costs, particularly theorized by Coase and Williamson, focus on an organizational perspective centered on governance, contractual incompleteness focuses on non-human assets and the mechanical aspects of contracts. We confront these two theories to show the points and counterpoints that can be overlapping but also deeply diverging. This article therefore provides a succinct point of view that allows the reader to quickly gain a perspective on the study of two theories at the foundation of the study of an ancient and pervasive phenomenon.