Transaction cost economics and trust in the hospital sector: An empirical examination using the example of Germany

Abstract

ABSTRACTThe transfer of responsibility for assets from government to hospitals has forced the latter to manage their buildings and equipment themselves. Therefore, hospitals – which are responsible for a third of healthcare expenditure in many countries – must decide whether they select insourcing or outsourcing solutions to handle their assets. To explain insourcing and outsourcing decisions, Transaction Cost Economics (TCE) is often used. But, because of the incompleteness of contracts between hospitals and their business partners, TCE is not sufficient to explain such decisions. Therefore, this article focuses on TCE, considering the concept of trust, to examine asset investment decisions in a selection of German hospitals. The influence of four conditions (trust, human asset specificity, physical asset specificity and uncertainty) about insourcing and outsourcing decisions is examined using fuzzy set Qualitative Comparative Analysis. The examination shows that in addition to TCE, trust influences hospitals’ decisions on whether to insource or outsource their asset investments. Therefore, the targeted management of business partners could be useful. But the influence of trust is limited and can be overridden by TCE conditions. This focus on a combination of conditions is relatively new, as is analysis of insourcing and outsourcing decisions of hospital asset investments.