Transacting in the State of Union: A Case Study of Exchange Governed by Convergent Interests

Transaction cost economics (TCE) treatments rarely devote extended consideration to the comparative advantages of non‐contractual governance. This paper focuses on one form of non‐contractual alternative. After addressing the concept of a `state of contract' as it may be inferred from TCE theory. I offer an alternative, `the state of union', in which the parties to an exchange can have their cake (efficient production frontiers) and eat it too (equitable outcomes without costly safeguards). An application of the concept is presented in a case study. The paper concludes with an assessment of implications of the argument for scholars and managers.