Behavioral assumptions and theory development: The case of transaction cost economics

From a critical realist perspective, I discuss the role played by behavioral assumptions in organization theories, and use transaction cost economics as an illustrative example. Core behavioral assumptions often constitute the foundation of the mechanismic explanations of a theory, and thus should play a pivotal role in theory development. I distinguish between assumption-based and assumption-omitted theory testing, and show that empirical research in transaction cost economics has been dominated by assumption-omitted testing. To establish a solid foundation for a new theory, management researchers should pay more attention to assumption-based testing. Copyright (c) 2006 John Wiley & Sons, Ltd.