Organizational politics and complexity: Coase vs. Arrow, March, and Simon

This article argues that the transaction cost approach to the problem of organizing economic activities is undermined by a neglect of the consequences of the complexity of the interconnections among such activities and, in particular, of the complexity generated by conflict and divergent interests of the agents involved. With the increase of conflict, organizational equilibria cease to exist. Thus hierarchy is, in principle, not necessarily an efficiency increasing remedy to the existence of transaction costs but can be explained also as a way to provide temporary equilibria in the everlasting organizational conflict