There is a view that the emerging information technologies are the source of new agglomeration economies, which foster urban concentration tendencies such as the spatial networks (e.g. economic clusters and industrial districts) that are attracting increasing attention. An alternative interpretation views the emerging technologies as one of the causes of corporate restructuring involving downsizing and flatter organisational structures. The new small and medium sized businesses that are a by-product of this corporate restructuring use spatial networks instead of hierarchy (e.g. vertical and horizontal integration) to address agency problems and reduce transaction costs. The transaction space concept is invoked to help explain the link between space, agency problems and transaction costs. It is argued that spatial networks help foster trust-honour arrangements, and via this mechanism transaction costs are lowered.
These factors will not be of equal importance in every industry. The significance of trust-honour arrangements is likely to be greater in industries involving the batch production of complex, customised goods and services. In these economic activities there is repeated turnover of contractual arrangements as businesses are continually looking for new supplier or customer partners. It is in these settings that trust-honour arrangements are critical to the reduction of transaction costs. The paper argues that the edge cities, economic clusters and industrial districts commented on with increasing frequency in the literature, are in part the product of these factors.