Revisiting agency and transaction costs theory predictions on vertical financial ownership and contracting: Electronic integration as an organizational form choice

Kaouthar Lajili, Joseph T. Mahoney

Research output: Contribution to journalArticle

Abstract

This paper provides an organizational economics foundation to guide managers in matching the comparatively more efficient organizational mode with transactional characteristics such as: (1) the degree of (human capital) asset specificity involved in the transaction, (2) the degree of uncertainty surrounding the transaction, and (3) the number of trading partners (suppliers and buyers) in the vertical supply chain. The key role of technology, and more specifically the e-business infrastructure and its effects on organizational mode choice, is highlighted. The main results from this analysis suggest that changes in information technology are changing the nature of transaction costs leading to more efficient management through an electronic integration solution thus favoring contracting and outsourcing than would have been technologically possible when Williamson's Markets and Hierarchies (Markets and Hierarchies: Analysis and Antitrust Implications. Free Press: New York, 1975) was published. It is emphasized that the transaction cost economics principles are durable but that the breathless advances in information technology, especially in the past decade, have comparatively favored lower transaction costs of markets over hierarchies.

Original languageEnglish (US)
Pages (from-to)573-586
Number of pages14
JournalManagerial and Decision Economics
Volume27
Issue number7
DOIs
StatePublished - Oct 1 2006

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Signal filtering and prediction
Information technology
Costs
Economics
Outsourcing
Supply chains
Managers
Contracting
Transaction cost theory
Prediction
Organizational form
Ownership
Agency costs
Industry
Transaction costs

ASJC Scopus subject areas

  • Business and International Management
  • Strategy and Management
  • Management Science and Operations Research
  • Management of Technology and Innovation

Cite this

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