Modularity, Transactions, And The Boundaries Of Firms: A Synthesis
Source: Harvard Business School
This paper constructs a unified theory of the location of transactions and the boundaries of firms. It proposes that systems of production can be viewed as networks of tasks. Transactions, defined as mutually agreed-upon transfers with compensation, are located within the task network and serve to separate one set of tasks from another. Placing a transaction in a particular location in turn requires work to define, count, and pay for the transacted objects. The costs of this work are generally low at module boundaries and high in their interiors.