Costly Control: An Examination of the Trade-off Between Control Investments and Residual Risk in Interfirm Transactions (original) (raw)
The second-generation empirical research on transaction cost economics – a review of the approaches
This paper reviews the “second-generation empirical research” on transaction cost economics (TCE). This stream of research examines the performance consequences of following the recommendation of TCE that firms should “align transactions, which differ in their attributes, with governance structures, which differ in their costs and competencies, in a discriminating (mainly transaction cost economizing) way” (Williamson, 1991, p. 79). I find that most of the studies concentrate on make or buy-decisions, and relatively few studies examine hybrid mechanisms like formal contracts and relational governance. All the studies link governance and misalignment directly to performance. Few studies examine why firms sometimes fail to align contracts with transaction attributes or the mechanisms through which misalignments affect performance. Although important advances have been made, methodological rigor can be improved further.
2003
Abstract The role of transaction cost economics (broadly conceived) in developing research in strategic management has been a hotly debated topic over the last decade. This methodological essay develops the argument that transaction cost insights are more than merely useful complements to existing approaches to strategic management. Rather they are necessary for adequately understanding the nature of strategizing, because transaction costs are essential aspects of processes of creating, capturing and protecting value.
Transaction Cost Theory: Past Progress, Current Challenges, and Suggestions for the Future
The Academy of Management Annals, 2021
Transaction cost theory (TCT) has been fruitfully applied to a wide range of organizational phenomena, as reflected in a vast and evolving body of research. However, in part due to the theory's broad success, important advances in some fields do not diffuse to other fields. In this essay, we lay out a path toward a pluralistic view of TCT that incorporates insights from multiple fields, primarily strategy and international business. In so doing, we critically assess the assumptions, key constructs, and evolving theoretical logic of TCT. We then propose an agenda for future research, highlighting opportunities for scholars to (1) expand and deepen the exchange of insights between strategy and international business, and further integrate TCT with the trust literature and with recent insights from behavioral economics and psychology, and (2) further apply TCT to study recent phenomena such as platforms and two-sided markets, the implications of artificial intelligence for governance decisions, and the pursuit of non-pecuniary objectives such as sustainability.
Risk Management in Strategic Alliances: Field Evidence
SSRN Electronic Journal, 2000
This paper provides field evidence on the management control practices used to mitigate risk and enhance cooperation in strategic alliances. The data are extensive field interviews with 38 managers in three large U.S. companies that have significant alliance risk exposure. Interviews are used to probe the specific forms of risk that firms face as well as the use of alliance management controls. Content analysis of the interview transcripts aimed at mapping the use of alliance management controls is structured by three widely used frameworks: Simons (1995), Merchant and Van der Stede and, . Each framework contributes a distinctive understanding of how alliance management controls are shaped by risk. Consistent with transaction cost economics and with the agency-based framework of Jensen and Meckling, management controls play an important role in mitigating opportunistic behavior. However, we provide evidence that management controls play an equally important role in facilitating coordination and communication between exchange partners, a role that fits more easily with the resource-based view of alliance formation and with the Simons and the Merchant and Van der Stede control frameworks.
Make, Buy, or Ally: A Transaction Cost Theory Meta-Analysis
Academy of Management Journal, 2006
Since the publication of Williamson's Markets and Hierarchies, many empirical articles have investigated the tenets of transaction cost theory. Using meta-analytic techniques, we quantitatively synthesized and evaluated transaction cost-based empirical research on organizational boundary (make, buy, or ally) decisions. We found strong support for the theory for both make versus buy and ally versus buy decisions. However, we did not find evidence that asset specificity had stronger predictive power than uncertainty. Hierarchical and relational governance appropriately aligned with transaction dimensions both led to enhanced performance. On the basis of our metaanalysis, we provide directions for future research.
Strategic Management Journal, 1998
Firms' boundary choices have undergone careful examination in recent years, particularly in information services. While transaction cost economics provides a widely tested explanation for boundary choice, more recent theoretical work advances competing knowledge-based and measurement cost explanations. Similar to transaction cost economics, these theories examine the impact of exchange attributes on the performance of markets and hierarchies as institutions of governance. These theories, however, offer alternative attributes to those suggested by transaction cost economics or offer alternative mechanisms through which similar attributes influence make-buy choices. Traditional empirical specifications of make-buy models are unable to comparatively test among these alternative theories. By developing and testing a model of comparative institutional performance rather than institutional choice, we examine the degree of support for these competing explanations of boundary choice. Hypotheses are tested using data on the governance of nine information services at 152 companies. Our results suggest that a theory of the firm and a theory of boundary choice is likely to be complex, requiring integration of transaction cost, knowledge-based, and measurement reasoning.
The sample of firms to be surveyed was drawn from a database about automation investments that covers approximately 80 percent of the population of small to medium-sized Dutch firms. The database was obtained from Directview, a large Dutch IT marketing firm. The survey developers randomly selected firms until at least 15 cases were identified for each of 36 cells in a stratified research design. The 36 (4x3x3) cells represented unique combinations of three theoretical dimensions: four product groups representing two IT product types, each with two levels of complexity (i.e., software and hardware, standard and complex products), three levels of network embeddedness (i.e., weak, modest, and strong interfirm relations), and three levels of the buyers' IT expertise (i.e., having one or more full time IT specialists, only part-time IT employees, or no IT employees). Firms with more innovative and complex IT purchases were intentionally oversampled. 1
Relational Ties and Transaction Costs - The Moderating Role of Uncertainty
International Food and Agribusiness Management Review, 2016
Relational governance is argued by many authors to positively affect performance exchange between business partners. Investigating the supplier side of the dyad, this study focuses on the effect of behavior uncertainty on the relationship between relational exchange supported by trust and the outcome of the exchange-negotiations and monitoring costs that occur during bargaining and ex post arrangements. Moderated multiple regression analyses is employed to test the model on primary data collected from a sample of 170 Albanian farmers engaged in cultivation and collection of medicinal aromatic plants. Findings show empirical support for the proposition that the adoption of relational exchange lowers ex post transaction costs. It also demonstrates that behavior uncertainty acts as a quasi-moderator, wherein it impacts both directly and indirectly the ex post transaction costs. The role of uncertainty in shaping relational ties, outcomes, and implications is further discussed.
Transaction cost theory refined
2010
Recently, integrating Transaction Cost Economic (TCE) and Resource Based View (RBV) arguments has become one of the most prominent theoretical approaches in research on business relationships. We question this dominance and strengthen an exclusive TCE perspective by recalling two of the core TCE constructs in order to achieve full exploitation of TCE reasoning. We discuss the transaction attributes "asset specificity" and "uncertainty" and identify conceptual gaps that lead to ambiguous results regarding the test of TCE guided hypotheses in prior relationship marketing and management research. To overcome these problems, we redefine both concepts and show that they are interconnected in more complex ways than past empirical research has accounted for. Hypotheses are derived and tested empirically in a cross-sectional online-survey setting by using means of structural equation modelling.
Testing Alternative Theories of the Firm: Transaction Cost, Knowledge-Based, and Measurement Explana
1998
Firms' boundary choices have undergone careful examination in recent years, particularly in information services. While transaction cost economics provides a widely tested explanation for boundary choice, more recent theoretical work advances competing knowledge-based and measurement cost explanations. Similar to transaction cost economics, these theories examine the impact of exchange attributes on the performance of markets and hierarchies as institutions of governance. These theories, however, offer alternative attributes to those suggested by transaction cost economics or offer alternative mechanisms through which similar attributes influence make-buy choices. Traditional empirical specifications of make-buy models are unable to comparatively test among these alternative theories. By developing and testing a model of comparative institutional performance rather than institutional choice, we examine the degree of support for these competing explanations of boundary choice. Hypotheses are tested using data on the governance of nine information services at 152 companies. Our results suggest that a theory of the firm and a theory of boundary choice is likely to be complex, requiring integration of transaction cost, knowledge-based, and measurement reasoning.