© Academy of Management Review 1997, Vol. 22. No. 2. 346-373. INTEGRATING TRANSACTION COST AND INSTITUTIONAL THEORIES: TOWARD A CONSTRAINED-EFFICIENCY FRAMEWORK FOR UNDERSTANDING ORGANIZATIONAL DESIGN ADOPTION PETER W. ROBERTS University of New South Wales ROYSTON GREENWOOD University of Alberta Transaction cost and institutional theories are integrated in order to enhance understanding oi the process by which entities adopt new :. organizational designs. By grafting cognitive and institutional con- straints into the comparative-efficiency framework favored by transac- tion cost theorists, theorists using the constrained-efficiency frame- work demonstrate both how efficiency-seeking organizations may be biased in favor of current designs and those that are legitimated within their institutional contexts. The article closes by overlaying the con- strained-efficiency framework onto the discussion about the evolution of the M-form oi organization, as well as suggesting empirical and simulation strategies consistent with the logic of the constrained-effi- ciency framework. Transaction cost theory and institutional theory, two established per- spectives within organization studies, offer seemingly contradictory inter- pretations of organizational phenomena. In the words of Granovetter (1985), transaction cost theory provides an undersocialized account whereas institutional theory offers an oversocialized perspective. More specifically, "economic approaches to the study of organization, transac- tion cost analysis included, generally focus on efficiency" (Williamson, 1981a: 549), whereas "institutional theorists place particular emphasis on legitimation processes and the tendency for institutionalized organiza- tional structures and procedures to be taken for granted" (Oliver, 1992:563), regardless of their efficiency implications. This article adds to previous attempts to integrate seemingly contradictory perspectives (Baum & Oli- ver, 1991; Eisenhardt, 1988, 1989; Oliver, 1991; Ulrich & Barney, 1984) by We would like to thank Marc Busch. John Brown, Paul Ingram, and Christine Oliver for their helpful comments on earlier versions of this paper. We would also like to thank the three anonymous reviewers and Allison Davis-Blake for their guidance through the review process. 346