Stanford Business magazine

GSB In Brief

MBA Alumnus Oliver Williamson Named 2009 Nobel Laureate in Economics

"In my career one thing leads to another," said Nobel laureate Oliver Williamson, MBA '60. He was reflecting back a half-century on how he happened to pursue an academic career that would lead to his being picked by the Royal Swedish Academy of Sciences to share the 2009 Nobel Memorial Prize in Economic Sciences.

Now a professor emeritus of economics at the University of California's Haas School of Business, Williamson was a freshly married engineer when he arrived at the Stanford Business School in 1958 to pursue an advanced degree. "I took fall quarter economics with Jim Howell and found economics was quite fascinating stuff and that I could bring many of the tools I learned as an engineer to bear," he said.

Then came the other half of the one-two punch: a young professor named Chuck Bonini, with whom he shared an office. Bonini "could see I had an applied interest even though I was in economics. He had come out of an interdisciplinary program at Carnegie Mellon and he thought I was well matched for it, and he plugged it several times. They were both enormously helpful in reshaping my career." At the time, he said, the Stanford MBA Program was strong but the School's PhD Program was being built.

At Carnegie Mellon, Williamson met up with Jim March, a young professor who would go on to build the organizational theory program into a powerhouse at the GSB. "Those were marvelous years," William-son said of graduate school, where he applied what he had learned in both engineering and business school to economics research.

Williamson is perhaps best known for his 1975 book Markets and Hierarchies in which he developed a theory of transaction costs, initiated by Ronald Coase, the 1991 Nobel laureate. William-son explained why very large firms are sometimes more efficient than smaller firms contracting with each other through markets. His ideas on the efficient boundaries of a firm have been useful to managers in various industries for analyzing the costs and benefits of joint ventures, mergers, acquisitions, spin-
offs, and outsourcing. The Nobel committee cited as an example a coal-burning electric plant near a coal mine. If there is only one coal mine in the region, integrating the two is economically sensible. If more mines are nearby, integrating with one mine could undermine the advantages of allowing coal companies to compete for the utility's business.

"Olly's work on transaction cost economics is taught in MBA courses on economics, strategy, organizations, marketing, and nonmarket strategy," said GSB Senior Associate Dean Glenn Carroll, PhD '82, who was a colleague of Williamson's at Haas before returning to Stanford. A half-dozen Stanford faculty in economics, organizational behavior, and political science presented papers at a 1995 conference honoring Williamson, and Carroll co-edited a 1998 book about their ideas called Firms, Markets and Hierarchies.