טכניון מכון טכנולוגי לישראל
הטכניון מכון טכנולוגי לישראל - בית הספר ללימודי מוסמכים  
M.Sc Thesis
M.Sc StudentLior Farbman
SubjectTranactions Costs and the Bureaucratization of the British
Civil Service in the 19th Century
DepartmentDepartment of Industrial Engineering and Management
Supervisor Dr. Bental Benjamin
Full Thesis text - in Hebrew Full thesis text - Hebrew Version


Abstract


The main goal of this essay is to examine historical changes in governance structures from the point of view of Transactions Cost Economics (TCE). In Transactions Cost Economics, the starting point is the individual transaction (the synapse between the buyer and the seller). The main issue the field deals with is why some transactions are performed within hierarchies/firms rather than directly in the market place. The current work tries to shed light on the economic incentives behind the British Government organizational decisions in the 19th century concerning the police services, postal services and water markets, from a TCE perspective.

Throughout the reign of Queen Victoria (1837-1901), Britain was the world's leading power. Its naval supremacy was unchallenged and its dominant influence in diplomacy and military ability was acknowledged all over the world. It was, however, the strength of Britain's economy that underpinned this pre-eminence. Britain had progressed from being what Napoleon dismissed as a 'nation of shopkeepers' in the 18th century and had become "the workshop of the world"- against the background of the world's first industrial revolution during the latter stages of the 18th Century and early 19th century.

 The improvements in the government structure and personnel, made possible by the adaptation of the Northcote-Trevelyan Report recommendations (1854), were in part adaptations to the needs of the developing industrial economy and to the new functions which government was assuming during the 19th century. The growing urban centers lacked the most elementary facilities to meet their needs for water supply, drainage, street repair and police. Of the great array of governmental functions that were assumed and extended in the course of the nineteenth century, two reforms, those of the police and of the Post Office, were outstanding for their impact on the numbers of government employees. A third market in which the government intervened was the water market, which was initially mostly run by private companies and was nationalized during the second half of the 19th century.

In order to better understand the economic incentives underlying the nationalization of the water industry and the police force, and the post office reform, the historical events in each of the three markets are evaluated against the results of two economic models which deal with the choice of the optimal governance structure.