This is the first in a series of five chapters dealing with opportunism problems. The starting point is a review of transaction cost economics, because scholars in this area have addressed the question of why labor-managed firms are rare. The specific focus is on the work of Oliver Williamson. The chapter first defines the concepts of transactions, governance structures, and transaction costs. A key argument is that authority relationships in firms can be abused in self-interested ways. In particular, input suppliers holding control rights are likely to ignore some of the costs their decisions impose on input suppliers who lack control rights. This idea has various implications for work organization and has not received enough attention within the transaction cost literature. More generally, the chapter criticizes the common view that prevailing forms of firm organization are efficient, either due to the intentional creation of efficient forms or due to market competition. It is argued instead that transaction costs can prevent the creation of efficient organizational forms, which in some cases may include labor-managed firms.