Puzzles in the economic institutions of capitalism: production coordination, contracting and work organisation in the Irish linen trade, 1750–1850

Pre-Famine Ireland is a byword for market failure and path dependence. Production of flax yarn and linen cloth was highly regulated and coordinated by the market rather than by firms. Contemporary political economists suggested that these institutional features provided evidence of organisational inefficiency. The historical evidence suggests that they were a rational response to transaction and production costs. The Irish case provides a test of the hypotheses that firms emerge to reduce the cost of market transactions. It suggests that institutions other than the firm can modify transaction costs, coordination of production can affect both transaction and production costs, and that agents choose between market and firm coordination given technology and factor prices. Finally, centralisation of production was driven by technology. Copyright 2005, Oxford University Press.