Scale as a Transaction Cost Variable in the U.S. Biopower Industry

Abstract

With increasing interest in renewable energy from agriculture, including biopower and cellulose ethanol, several aspects of the industry must be understood. Study of the organization of the biopower industry represents an under researched area and a new application of transaction cost theory to an emerging industry. Refinement of the theory can also result from challenging applications. This article provides an application of transaction cost economics to the existing United States biopower industry while challenging the empirical convention of excluding production cost variables from transaction cost analysis. Utilizing survey data from 53 biopower generators, scale is modeled as a transaction cost variable in explaining the choice of organizational from. Consistent with transaction cost theory, the probability of observing internal organization is found to be negatively correlated to scale. Given this evidence, this article reconsiders the impact of scale and transaction costs on the choice of organizational from.