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Organizations are not mere substitutes for structuring efficient transactions when markets fail; they possess unique advantages for governing certain kinds of economic activities througri a logic that is very different from that of a market. Transaction cost theory is "bad for practice" because it fails to recognize this difference. We identify some of the sources of the "organizational advantage" and argue for the need to build a very different theory, more attuned to the realities of what Simon (1991) has called our "organizational economy".