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Social Factors, Transaction Costs and Industrial Organization

National Taipei University, tmyang{at}mail.ntpu.edu.tw

This article demonstrates how social factors affect industrial organization by a comparative case study of South Korea and Taiwan. By applying the social networks analysis to the transaction costs measurement, the author argues that the mutual reinforcement between social network and business network has nourished the development of the industrial organizational structure of the two economies. The characteristics of social networks, on the one hand, determine the costs of information and communication, and, on the other hand, control the costs and benefits of force and fraud. Thus the transaction costs vary in different societies. Since trust and reputation can provide valuable services for each transaction, the behaviour of firms is regulated not only by law and morals, but more effectively by the economic incentives derived from social networks.

Key Words: embeddedness • industrial organization • social network • state policy • transaction costs

International Sociology, Vol. 22, No. 4, 435-461 (2007)
DOI: 10.1177/0268580907078008


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