Nobel Prize winner's theory shows where Boeing went wrong with its 787


Is competition in a free market always the best way? That idea certainly contributed to our current financial catastrophe. But one of yesterday's Nobel Prize winners for economics, Oliver Williamson, was lauded for his work suggesting that the free market isn't always the most efficient way to allocate resources. For instance, sometimes it's better for a company to do things itself, rather than turn to outsourcing.

If Williamson had been asked about it, he would likely have predicted the failure of Boeing's (BA) approach to developing its 787 Dreamliner, which now has an 850-order backlog due to production delays. As Williamson acolyte and Berkeley professor, Steve Tadelis, told the Wall Street Journal, Williamson's theories would have predicted problems because Boeing shifted too much responsibility to the free market when it decided to outsource 60 percent of the 787's design and development to suppliers (as I wrote in my book, You Can't Order Change).