Transaction Cost Economics Theory Research Articles

Managers’ Perceptions and Microfoundations of Contract Design

In interfirm exchanges such as contracts, transaction cost economics theory (TCE) argues asset specificity, critical for value creation, poses hazards requiring contractual safeguards. TCE assumes actors have foresight to mitigate these hazards even though specificity is typically hard to observe, suggesting managers’ impressions may be biased. Taking a microfoundational approach, we explore how individual negotiators form perceptions of optimal asset specificity and aggregate them to a firm-level assessment that may be influenced through negotiation. We then explore how managers may actively manipulate their counterpart’s perceptions to maximize their firm’s value capture. We theorize about when this may occur and the implications for contractual governance, value creation/capture, and repeated exchanges – each of which may vary from extant predictions. By applying both an expanded bounded rationality assumption (including cognitive distortions) and net value capture motivation symmetrically, we augment contract design research allowing it to predict when and how managers’ strategic behavior may impact exchange outcomes. As a result, this analysis provides a more nuanced understanding of when contract design may intentionally deviate from efficient governance predictions.

Factors Influencing the Effectiveness of the Tendering Process in the Public Sector: A Case of The Iringa Municipal Council

Public procurement operates within a stringent legal framework that must align with the broader goals of the Government. While procuring entities may have internal objectives, such as cost-effectiveness and timely service delivery, they must also serve the interests of the general public, who bear the tax burden. The study aimed to assess factors influencing the effectiveness of the tendering process in Iringa Municipal Council through financial resources, physical assets, and employee competence. A quantitative approach and cross-sectional design were used, whereby Transaction Cost Economics and Resource-Based View theories were adopted. Sixty-five employees were involved in this study. Descriptive statistics was used in data analysis. The findings showed that effective financial resource management plays a crucial role in influencing the effectiveness of the tendering process. The Iringa Municipal Council demonstrated effective tendering with its abundant financial assets, sufficient working capital, and strong financial position. Physical assets, such as well-maintained facilities and high-quality assets, positively influenced the effectiveness of the tendering process in The Iringa Municipal Council. Employee competence, commitment, education level, and experience significantly affected the effectiveness of the tendering process at The Iringa Municipal Council. The study concluded that financial resources are essential for an effective tendering process. Their efficient allocation and management are critical to success. Adequate physical assets and their maintenance are crucial for a streamlined tendering process. The study recommended that the Government should establish clear policies to ensure the effectiveness of the tendering process in public sectors. The Iringa Municipal Council should provide robust support and training to employees involved in the tendering process to enhance its efficiency. Further studies should explore additional factors contributing to ineffective tendering processes, such as the provision of substandard goods and services, missed deadlines, and punctuality issues in public sectors, to gain deeper insights into their causes and potential solutions

Understanding the costs of co‐commissioning: Early experiences with co‐commissioning in Australia

AbstractPublic services, such as health and other human services, are increasingly being delivered by third‐party providers (providers) under contract to public sector organisations (PSOs). While often advantageous to PSOs, this creates a fragmented service context which is difficult for consumers to navigate. Further, providers often deliver services under multiple contracts to multiple funders, with high reporting requirements, high administrative costs, and low operational sustainability. Policymakers have encouraged co‐commissioning—where PSOs come together to jointly commission services—to increase the efficiency and effectiveness of outsourcing. This article seeks to understand the costs of co‐commissioning in Australia, and consequently the enablers and barriers to co‐commissioning. This qualitative study is based on the early experiences of co‐commissioning by one of 31 Primary Health Networks (PHNs). Using transaction cost economics (TCE) theory, the study explains how the PHN started co‐commissioning services with other PHNs, before co‐commissioning with other types of organisations. The PHN also co‐commissioned relatively simple activities first, before moving on to more complex services. The insights provided using TCE theory help explain why co‐commissioning is initially complicated (and costly), requiring time to understand both the services to be commissioned and the governance requirements of each party involved. While initial transaction costs may be high when co‐commissioning, this may reflect organisational learning and capacity development costs ‐ therefore, costs are expected to reduce over time.Points for practitioners Fragmentation in policy and funding also leads to fragmentation of human services and high costs to service providers. Co‐commissioning is where multiple funders pool funds and strategically commission services together. Co‐commissioning offers a way to reduce fragmentation and reduce costs to service providers, potentially offering better public value. Co‐commissioning can initially take time and resources to establish. Over time, as organisations learn, the cost of co‐commissioning reduces potentially offering benefits to funders, providers, and service users.

FACTORS AFFECTING OUTSOURCING DECISIONS FOR FACILITY MANAGEMENT SERVICES

This research aimed to explore factors that affect outsourcing decisions for Facility Management (FM) services in Thailand. It was based on the result of 290 respondents authorized to make decisions on outsourcing Facility Management services. Due to differences in each business field, factors that affect outsourcing decisions were also dissimilar. The goal of decisions, in general, was to choose outsourcing services instead of using in-house resources which reflected business needs in terms of management, strategy, economics, or others to help facilitate and increase the competition level. The results of decision makers' perceptions showed that important factors in different industries considerably varied. The most important factors were management and quality factors which were strongly supported by the Core Competency theory. Meanwhile, the Transaction Cost Economics theory was still significant but not regarded as a top priority for business concerns in the present uncertain period.

ESG and Industry 5.0: The role of technologies in enhancing ESG disclosure

Environmental, social, and governance (ESG) is increasingly being used to evaluate the performance of firms and pension funds, guide investment decision-making, and inform customer purchasing. Research on ESG is still evolving. Although a few studies have investigated the role of individual technologies (e.g., blockchain) in ESG, applying a broader set of emerging technologies in improving ESG disclosure and addressing its limitations is yet to be explored. Industry 5.0 offers a powerful framework for understanding the role of technologies in enhancing ESG disclosure. This conceptual paper explains ESG from the lens of management theories and views, including stakeholder theory, legitimacy theory, transaction cost economics theory, institutional theory, signaling theory, network economics theory, and the decoupling view. It then explores the application of I5.0 in enhancing ESG disclosure. The underlying values of I5.0 align with those of ESG, and I5.0 can support ESG functionalities. I5.0 is particularly useful in enhancing ESG disclosure authenticity, extending ESG disclosure from retrospective to prospective and real-time reporting, customizing ESG reports, extending the scope of reporting to multi-tier supply chains, reducing ESG cost, and enhancing the overall efficacy of ESG disclosure. The paper also sheds light on governance aspects, challenges, and risks of employing I5.0 to ESG.

Owners managing the commercial interface on complex projects: A pluralistic theoretical perspective

Research on the commercial interface in inter-organisational projects has developed in recent years but still has weaknesses, principally due to its theoretical reliance on transaction cost economics (TCE). We address those weaknesses by providing an innovative intervention-based research (IBR) study of owner commercial strategy development for a complex project that goes beyond TCE to provide a pluralistic perspective. We show how this pluralistic perspective, which we dub the four forces model, provides the principles for the development of commercial strategy for managing the commercial interface by project owners. We then show how the owner's commercial strategy evolved in the face of capability constraints as it moved through the project lifecycle. We thereby contribute to theory and practice in project organising research first by situating the commercial interface between the owner and the supplier domains of project organising as a central concern in project organising research; second, by providing an empirical basis for the strategic management of the commercial interface by project owners; third by developing a pluralistic perspective on managing the commercial interface from a project owner point of view that moves beyond the current reliance on TCE theory; and fourth by introducing IBR as a novel research method.

Firm performance in digitally integrated supply chains: a combined perspective of transaction cost economics and relational exchange theory

PurposeThis paper aims to examine how interfirm transactional and relational assets drive firm performance (FP) in digitally integrated supply chains.Design/methodology/approachThe authors combine the Transaction Cost Economics (TCE) and Relational Exchange Theory (RET) frameworks to hypothesize that FP will be a function of Asset Specificity (AS), Digital Technology Usage (DTU) and Collaborative Information Sharing (CIS). In addition, the authors hypothesize that Supply Chain Integration (SCI) will partially mediate the effect of DTU and fully mediate the impact of AS and CIS on FP. A cross-sectional survey of supply chain managers is used to test the hypotheses.FindingsFindings indicate that specific investments in digitally integrated supply chains would increase FP. In addition, SCI fully mediates the relationships between AS and FP and CIS and FP, while SCI partially mediates the influence of DTU on FP.Practical implicationsManagers could strategically engage in the technologies that effectively fit within the firm’s supply chain strategies and seek to develop a pragmatic expertise that enables the effective use of technology in a comprehensive setting.Originality/valueThe study enriches the extant literature by incorporating TCE and RET as contradictory viewpoints on AS and investigating how transactional and relational assets affect FP in digitally integrated supply chains.

Evaluasi Efisiensi dan Efektivitas Penggunaan Tenaga Outsourcing di Untag Banyuwangi dari Perspektif Transaction Cost Economics

The education sector, especially higher education or universities, has a foundation that must be carried out, is called the Tri Dharma University whose focus on Teaching, Research and Community Service. In addition to this, in order to maximally support lecturers in carrying out the Tri Dharma University, other activities such as service to students need to be assisted by other parties. The other activities intended are in terms of security and cleanliness within the University. In order to carry out activities in a conducive manner, some parties choose to use third party services or outsourcing. This study aims to evaluate the strategy of outsourcing in terms of the theory of Transaction Cost Economics at the University of August 1945 Banyuwangi. The research method in this research uses qualitative research methods with research informants who are choosed purposively. The selected informants are informants who are considered to be involved and affected by the implications of implementing the outsourcing system, including the implementing agency and the owner of the designated outsourcing agency. Based on the results of the study it is known that the cost analysis in terms of TCE theory, the use of outsourced labor at Untag Banyuwangi is considered inefficient. This is because the costs arising from using outsourcing services are considered to be more expensive than before using outsourcing services. However, things are different when viewed in terms of asset specificity consisting of human resources (skill level, knowledge, and experience of employees), physical assets, location, dedicated, temporal, and brand specificity, it can be concluded that Untag Banyuwangi has been effective and efficient in the use of outsourcing services. So that the University of 17 August 1945 Banyuwangi does not need to provide increased employee skill training.

Green supplier selection and environmental performance of firms in the Chinese manufacturing industry: the roles of behavior and outcome controls

PurposeGreen supplier selection (GSS) is acknowledged as important governance in green supply chain management (GSCM). However, this paper argues that GSS is not a stand-alone GSCM governance mode that determines manufacturers' environmental performance but rather one that needs to be aligned with contractual governance, particularly contractual control and adaptation, to promote environmental performance effects. This paper adopts GSS as ex ante governance and introduces behavior and outcome controls as ex post contractual control and adaptation, respectively. Thus, this paper addresses how GSS affects environmental performance directly and indirectly through behavior and outcome controls within transaction cost economics (TCE) theory.Design/methodology/approachThis research model was tested on 300 Chinese manufacturing firms, and multiple regression analysis was used to validate our hypotheses.FindingsA direct relationship was observed between GSS and environmental performance. This direct relationship is positively mediated by behavior and outcome controls.Originality/valueThis paper develops and elucidates an integrative green supply chain process proceeding from the implementation of ex ante GSS and ex post contractual governance to the realization of environmental performance. Furthermore, this paper considers two different forms of contractual governance, specifically contractual control and adaptation, and explains how they can be implemented using behavior and outcome controls from the perspective of TCE theory.

Organization Architecture Configurations for Successful Servitization

Despite the growing importance of servitization as a source of competitiveness for manufacturers, limited knowledge exists about organizational issues of servitization. Drawing on transaction cost economics theory and a configuration theoretical perspective, our study illuminates different organization architectures for servitization and how firms align such architectures with servitization approaches to achieve high financial performance. We analyze qualitative data based on interviews with 22 managers and quantitative data from a survey of 161 equipment manufacturers. The results indicate that manufacturers mostly opt for one of three organization architectures for servitization: internal product business unit, internal specialized service business unit, or external service provider. In addition, they reveal equifinal configurations of servitization characteristics to achieve high financial performance for each organization architecture. The internal specialized service business unit turns out as a flexible organization architecture to successfully provide smoothing, adapting, and substituting services. The use of an external service provider is less suited for the provision of adapting and substituting services, which require more knowledge specialization and coordination. All three organization architectures can be used to provide smoothing services. In summary, the results may serve as decision-making templates for aligning organization architecture, offering characteristics, and service provider integration to pursue servitization successfully.

Strategic Outsourcing and Firm Performance: A Review of Literature

Abstract: Despite the fact that firms collectively contribute to the socio-economic development of the national economy, most firms nowadays are face difficulties in maintaining superior firm performance; occasioned by unmanageable business environment uncertainty and changes. It is for this reason that the idea of strategic outsourcing has evolved in response to changes in the business environment and uncertainty. Despite vast empirical research on the relationship between strategic outsourcing and firm performance, there is limited research on influence of strategic outsourcing on firm performance in developing countries. the majority of studies on the subject have contradictory results, and some have methodological, contextual, and conceptual gaps. Thus, there is currently conflicting evidence from the body of literature regarding the impact of strategic outsourcing and firm performance generally, so this research was necessary. The general objective of this study is to review conceptual, theoretical as well as empirical literature on the relationship between strategic outsourcing and, firm performance as well as the mediating effect of speed of service and moderating effect of competitive intensity on the relationship with the view of highlighting the knowledge gaps suitable to form basis for future research. The review of conceptual framework highlighted the historical development as well as the dimensions and perspectives of both strategic outsourcing and firm performance. It further discussed the speed of service delivery concept and the competitive intensity. The underpinning theories were; Resource Based Theory, Transaction Cost Economics Theory, Social Exchange Theory. The paper further reviewed extant empirical research on the manner in which strategic outsourcing relates to firm performance. It also reviewed focus as mediating variable and competitive intensity as moderator of relationships. Based on findings, the paper; proposed theoretical model to explain firm performance in terms of the indicators of strategic outsourcing and mediated by focus while it moderated by competitive intensity. In accordance with the reviewed literature, this paper concludes that service integration and management, offshore outsourcing, and multi-sourcing as measures of strategic outsourcing affect firm performance which is measured firm efficiency, firm profitability, competitive advantage, customer satisfaction and employee productivity. The relation is mediated by core competencies (measures of speed of service delivery) and moderated by predictability of a competitors’ market activity, hostility of a business’ s key competitors, and breadth of key competitors’ activities (measures of competitive intensity).

Buyer–supplier collaboration's commitment. An antecedent for procurement performance of large manufacturing entities in Tanzania

PurposeThis study was steered to establish how buyer–supplier collaboration's commitment attributes serve as an antecedent for procurement performance in large manufacturing entities in Tanzania.Design/methodology/approachA parallel, concurrent, mixed method was used in the study. Quantitatively, 52 firms were surveyed from Temeke Municipality, Tanzania, using questionnaire that specified 1 procurement manager and 1 store manager from those firms, totaling a sample size of 104 respondents. Qualitatively, expressive opinions to supplement the numeric data were gathered from supply chain managers using the saturation principle. Explanatory design analyzed the existing cause–effect relationship, and the null hypotheses were tested using binary logistic regression at p values < 0.05 and ExpB > 1.FindingsFidelity and enthusiasm to suggest improvements to suppliers and the duration of the collaboration antecede the procurement performance of the manufacturing firms in Tanzania, while devotion to invest resources and initiatives on joint problem solving have no significant impact.Research limitations/implicationsThe causality between buyer–supplier collaboration and procurement performance has been revealed. Since there might be third party logistics in collaborations, future research should center on their moderating effect.Practical implicationsA framework has been developed for liberating procurement performance in the context of large manufacturing firms in Tanzania.Originality/valueBased on Transaction Cost Economics and Resource Dependency Theories, the study revealed the root cause of procurement performance in the context of Tanzanian manufacturing firms, while also considering commitment to buyer–supplier collaboration as a prerequisit for the commendable target.

What sets cooperative farmers apart from non-cooperative farmers? A transaction cost economics analysis of coffee farmers in Mexico

This study investigates what factors relate to the coffee farmer’s cooperative affiliation decision and whether this decision impacts the farmer’s cash holdings. First, we propose a cooperative affiliation model based on transaction cost economics theory. There is a lack of consensus in the literature on what factors explain the farmer’s cooperative affiliation decision in the coffee sector. Overall, we find that the more specialized coffee farmers are, the more likely they will become cooperative affiliates. This is consistent with transaction cost economics predicting that cooperatives are business structures that can reduce transaction costs and safeguard specialized assets from opportunistic behavior. Specifically, logit regression models suggest that shade-grown coffee plantations, off-farm income, coffee farming experience, low-level market competition, farmland size, altitude, and private farmland are statistically related to the farmer’s decision to affiliate with cooperatives. Results on farmland size and shade-grown coffee plantations can be particularly relevant for scholars, policymakers, cooperative leaders, and extension professionals in the region. Second, based on the affiliation model, we employ propensity score matching to evaluate the impact of the farmer’s cooperative affiliation decision on cash holdings, particularly on cash shortness. It is often claimed that farmers do not affiliate with cooperatives because these organizations cannot pay them in full at harvest and coffee collection time. It is believed that cooperatives’ inability to pay farmers early increases the likelihood of farmers’ cash shortness and their need for additional financing to operate or cover household needs. However, this study finds no evidence that the affiliation decision is related to the likelihood of the farmer experiencing cash shortness around harvesting and selling time.

Impact of Globalization on Purchasing and Procurement in Jordan

Purpose: The study sought to analyze the impact of globalization on purchasing and procurement in Jordan.&#x0D; Methodology: The research was conducted entirely on computers. Secondary data, or data that doesn't require actual observation in the field, are the focus of desk research. Because it requires little more than an executive's time, telephone rates, and directories, desk research is generally seen as a low-cost strategy in comparison to field research. As a result, the research used data that had already been collected and reported. This secondary data was readily available via the internet's digital library and scholarly articles.&#x0D; Findings: The results show that globalization has had a major impact on purchasing and procurement, creating both opportunities and challenges. The procurement process has become more complex, with a greater focus on collaboration and long-term relationships with suppliers. Organizations must be prepared to adapt to these changes in order to remain competitive in a globalized world. In Jordan in Jordan, the country’s access to global markets, foreign investment, and technological advances have helped to integrate the country into the global economy.&#x0D; Unique Contribution to Theory, Practice and Policy: Future research in the field of purchasing and procurement may be grounded in the global value chain theory and the transaction cost economics theory. Policymakers, researchers and academics from all across the world will all stand to gain from this study's findings. Executives in charge of national purchasing and procurement initiatives will also use the study's findings to boost the urbanization performance across the board. The research suggests that the purchasing and procurement sector should implement globalization policies to boost the effectiveness of their primary operations and activities.

Brand–SMI collaboration in influencer marketing campaigns: A transaction cost economics perspective

Brands are showing an increasing appetite for influencer marketing campaigns in order to accentuate the exclusivity of their products. While the literature supports influencer marketing as a competent persuasive marketing strategy for reaching niche audiences, studies investigating influencer collaboration management strategies to evade the associated challenges remain scant. Thus, influencer marketing is at risk of wasted investment and a low success rate. This research draws on transaction cost economics theory to investigate how brands effectively manage collaboration with social media influencers (SMIs) using a multi-case-study approach of influencer marketing campaigns in 15 brands. Our findings identify critical management strategies and develop a collaboration management framework for effective collaboration. We also highlight control factors to steer brand–SMI collaboration, offering a more nuanced understanding of influencer marketing collaboration management strategies. This paper marks an exploratory step toward understanding influencer marketing from brands' perspectives and offers guidance for brands on how best to engage in effective influencer collaboration.

Perceived transaction cost and its antecedents associated with fintech users' intention: Evidence from Pakistan

Researches depict a considerable degree of acknowledgment of financial technology improvement in Pakistan. However, the costs blocking clients' intention to utilize financial technology remain dubious. Building upon Transaction Cost Economics and Innovation diffusion theory, this paper hypothesizes that consumers' transaction cost of fintech is affected by nine antecedents: perceived asset specificity, complexity, product uncertainty, behavioral uncertainty, transaction frequency, dependability, limitations, convenience, and economic utility. Transaction cost has a negative relationship with consumers' intentions to use fintech for online buying or availing services. We tested the model using data gathered from the individuals. The results show that factors that are positively related to consumers' perceived transaction cost, among them product uncertainty (β = 0.231) is the greatest of factors, followed by behavior uncertainty (β = 0.209) and asset specificity (β = 0.17), those that are negatively associated are dependability (β = 0.11), and convenience (β = 0.224). The study is limited in scope, focusing primarily on cost factors. Future research may analyze additional cost-related elements and the actual use of financial technology by using samples from different countries.

Adoption of additive manufacturing technology: drivers, barriers and impacts on upstream supply chain design

PurposeThis paper investigates how the adoption of additive manufacturing (AM) impacts upstream supply chain (SC) design and considers the influence of drivers and barriers towards the adoption.Design/methodology/approachTen case studies investigating AM adoption by Original Equipment Manufacturers (OEMs) in five industries were conducted. This research is driven by a literature-based framework, and the results are discussed according to the theory of transaction cost economics (TCE).FindingsThe case studies reveal four patterns of AM adoption that affect upstream SC design (due to changes in supply base or types of buyer–supplier relationships): make, buy, make and buy and vertical integration. A make or buy decision is based on the level of experience with the technology, on the AM application (rapid manufacturing, prototyping or tooling) and on the need of control over production. Other barriers playing a role in the decision are the high initial investments and the lack of skills and knowledge.Originality/valueThis paper shows how different decisions regarding AM adoption result in different SC designs, with a specific focus on the upstream SC and changes in the supply base. This research is among the first to provide empirical evidence on the impact of AM adoption on upstream SCs and to identify drivers of the make or buy decision when adopting AM through the theoretical lens of TCE.

The Effect of Sustainable Supply Chain Management On Firm Innovative Performance: A Study of Manufacturing Firms in Nigeria

The study sought to establish the effect of sustainable supply chain management practices on innovative performance of manufacturing firms in Nigeria. The precise goals were to evaluate how Nigerian manufacturing companies performed in terms of innovation in relation to economic, environmental, and social dimension of sustainability. The Transaction Cost Economics (TCE) Theory and the Stakeholder Theory were both used in the study. The study employed a descriptive survey approach, with three Nigerian manufacturing companies as the target population. The study used a purposeful sampling strategy, and the researcher decided that a sample size of 120 was manageable. A pilot study was conducted to evaluate the validity and reliability of the research instrument prior to the collection of data. A 91% response rate was obtained, and the results were displayed in tables using percentages. The analysis showed that sustainable supply chain management practices had a positive and significant impact on the innovative performance of manufacturing companies in Nigeria, demonstrating that economic, environmental, and social dimension of sustainability all had a significant positive impact on this performance. The research consequently advises manufacturing companies to engage in more sustainable operations so as boost their competitive edge.

Assessing the efficacy of visual contracts: an empirical study of transaction costs

ABSTRACT Visual contracts have attracted increasing attention as a human-focused approach to contract law, with proponents arguing they are a better way to effectively communicate complex terms and conditions. However, there have been only limited empirical studies of the efficacy of these contracts. This paper compares and evaluates data of responses to text and visual contracts from two large Australian companies. Drawing on theories of transaction cost economics, we undertook an empirical study of ordinary least square (OLS) regressions to examine the effectiveness of visual contracts in comparison with traditional text-based contracts. Analysis of the results demonstrates that the visual format plays a significant role in reducing the transaction costs of contracting, providing empirical confirmation of the value of contract redesign and the visual format.

Premature R&amp;D alliance termination and shareholder returns: Evidence from the biopharmaceutical industry

AbstractPrior research has highlighted the performance implications of R&amp;D alliances for innovation outcomes and the financial returns of firms. However, research on R&amp;D alliances has yet to offer insights into how the premature termination of such alliances, before fulfilling their predetermined innovation objectives, affects the shareholder returns of the firm. Applying transaction cost economics (TCE) theory and real options (RO) logic to a post‐formation alliance setting, we posit that premature termination of R&amp;D alliances prompts relative volatility in investors' prospective benefits and risks. Employing an event study analysis method and using a sample of 116 premature alliance termination announcements in the biopharmaceutical industry, we observe an average negative abnormal stock return of 3.21% for focal firms. Further, our analyses reveal that investors respond even more adversely to alliances terminated unilaterally by the partner of the focal firm in which they invested than those terminated through mutual agreements or by the focal firm itself. Also, we find that alliance duration from formation to termination mitigates the negative effect of termination on shareholder returns.