Transaction cost theory, as proposed by Ronald Coase and Oliver Williamson, states that organizations experience enormous economic costs and corresponding economic advantages in each and everyone of their captivities or transactions (Slater & Spencer, 2000). For many years, the dominant neoclassical approach to the theory of the firm suggested that nothing significant would be gained from peering into the "black box" called the firm and that it was enough to know that a firm operated to maximize profits. In the core model of perfect competition, this was achieved subject to known technology and known prices.
Transaction cost theory takes into account the assertion that the firm exists because of its capacity to economize on the costs of market-oriented production (Slater & Spencer, 2000). The firm itself emerges as the most superior economic device for the reduction of market costs. Consequently, the efficiency advantages of any organization or firm are regarded by Coase as greatest where long-term contracts are negotiated (Coase, 1937). Long-term contracts -- including contracts and other arrangements that address staffing and employment issues -- will be preferred unless the costs of negotiation and enforcement of separate or short-term market contracts are low. In the context of the present report, transaction costs will be understood in the context of employee turnover, with special reference to the health care industry.
Stiles and Mick (1997) point out that in terms of exchange processes or transactions, modern medical care is complicated. In the context of employee turnover, health professionals have recognized that there is a transactional aspect of quality as well as staffing itself. Given that there is inherent uncertainty in the operation of the firm, regardless of its productive focus, and further given that cost reduction, while maintaining high levels of excellence and quality in care delivery are both...