The rise of governments in global oil governance: Historical dynamics, transaction cost economics, and contemporary implications

Abstract

In this paper, I aim to explain why global oil companies created different governance structures to deal with similar challenges. I test several hypotheses derived from transaction cost economics. These hypotheses link movements in asset specificity and uncertainty to changes in the level of hierarchy and political involvement of governance structures. To test these hypotheses, I conduct a crisp-set Qualitative Comparative Analysis of seven important governance changes. The analysis leads to the following preliminary theory: increasing and highly volatile global oil production as well as declining market positions for important actors create long-term pressure for governance change. But they do not trigger this change, nor do they predetermine the form it will take. Actors actually change governance structures in reaction to more recent events. They will try to increase government involvement, if they face a more uncertain environment or contradictory market trends. They will more likely prefer stronger hierarchy at a given level of government involvement, if they have to deal with an increasingly diverse market environment.