ABSTRACT
The new institutional economics embraces property right theory, transaction cost theory, and agency theory. The focus of the new institutional economics is on the forms that organisations, especially capitalist firms, take. This chapter examines the problem areas of the theories separately in order to avoid possible misunderstandings that may stem from a combined explanation since they 'have significant features in common and each could probably be expressed in terms of the other'. First, the problem area of transaction cost economics, then, of agency theory will be examined. Agency theory can be applied to highlight specific internal and external agency relationships from a strategic viewpoint. As Williamson argues, 'transaction cost economics deals with many of the key issues with which business strategy is or should be concerned'. The atmosphere can be seen as a multiple-exit situation, in terms of Latsis, where the obvious course of action is not determined uniquely by objective conditions.
