This lecture will have two main objectives.  First, it will introduce the two principal approaches to the economic organization of the firm: the transaction-cost approach and the capabilities or knowledge-based approach.  The lecture will thus serve as an introduction to the lectures of Oliver Williamson and Sidney Winter.  Second, as the title suggests, the lecture will set forth the theory of dynamic transactions costs, which one can think of as an attempt to bridge the gap between transaction-cost and capabilities approaches.