Hybrid Governance and Property Rights: A Formal Model

Abstract

Property Rights Theory and Transaction Cost Economics predict different outcomes when analyzing hybrid governance forms. In this research, we create a formal model of transaction incentives on investment by the buyer and effort by the seller to make the transaction more efficient. The formal model results in testable propositions that hold promise (a) to resolve the theoretical disconnection between governance structure and the nature of required mutual investments and (b) to allow scholars to better understand how hybrid governance forms motivate transaction partners to engage efficiently in transaction-support actions such as capital investments and the allocation of specialized effort.