Transaction Cost Perspective Research Articles

Online travel insurance purchase intention : a transaction cost perspective

ABSTRACTUsing the transaction cost theory, this study examines customers’ online travel insurance purchase intentions. Data was collected from the life insurers in Taiwan via in-depth interviews and surveys. The hypothesized research model was tested using structural equation modeling. Findings of this study confirm that as customers have more trust in and less online uncertainty about life insurers with greater online experience, they are more likely to purchase online travel insurance. This study reveals that customers with high online purchasing frequency show less transaction cost than those with low online purchasing frequency.

Practical Applications of Capacity of Smart Beta Strategies from a Transaction Cost Perspective

<h3>Practical Applications Summary</h3> As the smart beta market grows, investors are wondering how big these strategies can get before they start losing efficacy. In <b><i>Capacity of Smart Beta Strategies from a Transaction Cost Perspective</i></b>, published in the Winter 2017 issue of the<b><i> Journal of Index Investing</i></b>, <b>Ronald Ratcliffe</b>, <b>Paolo Miranda</b>, and <b>Andrew Ang</b> set out to tackle one dimension of this debate. Using a transaction cost model that was developed by the <b>BlackRock</b> team for daily use, the article examines the “capacity” of momentum, quality, size, value, minimum volatility, and multifactor strategies. Capacity is defined as the hypothetical breakeven AUM at which the turnover transaction costs of an ETF would exactly offset the historically observed style premium. <b>TOPICS:</b>Factor-based models, performance measurement

The role of psychic distance in entry mode decisions: Magnifying the threat of opportunism or increasing the need for local knowledge?

Research Summary: With respect to entry mode decisions, psychic distance may play two contradictory roles. On one hand, the transaction cost perspective is concerned with opportunism. Psychic distance magnifies the threat of opportunism, which encourages higher levels of control by foreign firms. Conversely, the new internalization perspective emphasizes the role of complementary assets controlled by local entities. Distance increases the need to access local knowledge, which encourages firms to seek joint ventures. By adopting an experimental approach and measuring managers' a priori perceptions of distance, this article contributes to the literature by providing a more sophisticated approach for discriminating between these effects. The results indicate that distance magnifies the need for firms to access complementary assets; however, distance does not appear to magnify the threat of opportunism. Managerial Summary: This article explores the role that psychic distance (i.e., differences across countries in culture, language, religion, etc.) plays in how firms enter foreign markets. Specifically, do they prefer wholly owned subsidiaries (WOS) or do they prefer to form joint ventures (JV) with local players? One perspective argues that firms are concerned about potential partners in a foreign market taking advantage of them; thus, they will prefer the greater control a WOS offers. Conversely, firms may simply recognize that these differences put them at a disadvantage and prefer a JV as a way to gain local knowledge. Our experiments indicate that the latter explanation dominates. When entering very different countries, managers seem to prefer JVs in order to access key local knowledge.

Big Data and Tax Haven Secrecy

While there is now significant literature in law, politics, economics, and other disciplines that examines tax havens, there is little information on what tax haven intermediaries—so-called offshore service providers— actually do to facilitate offshore evasion, international money laundering, and the financing of global terrorism. To provide insight into this secret world of tax havens, this Article relies on the Author’s study of big data derived from the financial data leak obtained by the International Consortium for Investigative Journalists (ICIJ). A hypothetical involving Breaking Bad’s Walter White is used to explain how offshore service providers facilitate global financial crimes. A transaction cost perspective assists in understanding the information and incentive problems revealed by the ICIJ data leak, including how tax haven secrecy enables elites in nondemocratic countries to transfer their monies for ultimate investment in stable democratic countries. The approach also emphasizes how, even in a world of perfect information, political incentives persist that thwart cooperative efforts to inhibit global financial crimes.

Governance mode for port congestion mitigation: A transaction cost perspective

Transaction cost analysis (TCA) has been applied in a wide range of academic disciplines, including economics, marketing, sociology, organization theory, and business strategy. Literature in maritime transport has had limited exposure to this versatile theoretical framework. This paper aims at developing a conceptual model that describes governance strategies that various players within the maritime sector can adopt to mitigate congestion at ports. A TCA is used to examine port congestion mitigation from a governance perspective. A theoretical analysis conducted for this paper reveals that the three characteristics of TCA – asset specificity, frequency, and uncertainty – prevail in the maritime sector, too. The first two factors, frequency, and uncertainty, contribute to port congestion, while the third factor, asset specificity, exists because to release port congestion, some players ought to make a specific investment. We use TCA to discuss the circumstances under which governance modes such as bilateral governance and vertical integration should be used to avoid congestion and other kinds of transaction costs associated with these three attributes in the maritime sector. In this study, we suggested several testable propositions to identify the mode of governance that should be selected by stakeholders to mitigate port congestion and to protect specific investments made to release congestion at ports. This line of analysis will certainly provide all the stakeholders engaged (particularly, a public policymaker) useful insight into understanding congestion from a governance perspective.

Co-creating value through renewing waterway networks: A transaction-cost perspective

Since modern waterway networks are increasingly confronted with ageing assets, waterway renewal will increase in importance for western countries. Renewal can be regarded an impetus for realising integrated waterway networks that internalise externalities, which entails broad stakeholder involvement. This can be coordinated through different inter-organisational structures. Applying a transaction-cost perspective, we contribute to the assessment of effective governance arrangements for renewing waterway networks in such an integrated fashion. Our aim is to examine efficient inter-organisational structures for waterway renewal, as perceived by actors involved in a case study of the Dutch waterways. Our findings show that waterway renewal incorporates additional functionalities in terms of capacity (expansion or reduction), but not so much in terms of quality (combining transportation aims with spatial objectives such as ecology or regional development). Inter-organisational structures that address geographical interrelatedness and, hence, broader stakeholder involvement were associated with uncertain and time-consuming transactions, because of extensive negotiations regarding the alignment of conflicting interests and the crossing of geographical and administrative boundaries. Also, a change in interdependency from hierarchical towards contractual relationships was required, putting dominant actors (the national government) in an unfamiliar position in which they loosen their grip on infrastructure investments. Perceptions on transactions centre on sectoral aims and individual assets, whereas the actual transaction may be different if a perspective is taken that includes the greater waterway system, the wider spatial surroundings and a longer-term horizon. We conclude that short-term, transportation objectives overrule longer-term, integrative objectives, which withholds strategic considerations required for aligning waterway interests.

Performance of green supply chain management: A systematic review and meta analysis

Abstract Environmental sustainability is nowadays driving firms to not only develop internal green activities, but also extend toward green supply chain management (GSCM). The extensive application of external GSCM by firms can be partially justified from perspective of transaction costs. GSCM practices are often considered to be prudent because studies suggested that such practices have a positive impact on firm performance according to the resource-based view. However, crucial questions still surround the practice-performance relationship. First, what is the overall relationship between GSCM practice and firm performance? Second, under what situations is the relationship stronger or weaker? To answer these questions, this paper focuses on quantitatively analyzing extant literature published in the field of GSCM. A random-effects meta-analysis is used to synthesize the empirical results of 54 selected literature with 245 effect sizes. Besides, subgroup analysis and meta-regression are applied to test potential moderators that may influence the strength of practice-performance relationship. We find that, internal and external GSCM practices are positively related, and they are both positively related to firm performance. Particularly, their relationship with environmental (r = 0.518) performance is the largest, followed by operational (r = 0.481) and economic (r = 0.464) performance. In addition, test of moderators discovers that industry type, ISO certification, export orientation and the cultural dimension of uncertainty avoidance all have moderating effect on the practice-performance relationship. Discussions and limitations are further addressed.

Transaction Cost Perspectives on Cooperation: A Study of Hybrids Through Foundations Lobbying in the EU

This article uses a transaction cost economics (TCE) approach to analyze cooperation between nonprofits, governments and firms, namely, hybrids. This is a different concept from hybrids in the nonprofit management literature. In TCE, hybrids are organizational modes of transactions where the parties contribute limited resources, for which they establish modes of coordination. This article explains how the concept of hybrids can be applied to research on nonprofits, illustrating this with an analysis of foundations lobbying in the European Union (EU). As regulatory transactions are organized through hybrids, this article proposes that foundations are likely to participate in EU policymaking for regulatory transactions, which are too costly to solve individually. The results show that foundations participate in different EU regulatory environments; significantly, this includes environments with high coordination costs.

Uncertainty, Adaptation, and Alliance Performance

We conceptualize alliance adaptation as a bundle of governance-based change practices in ongoing alliances, including contractual alterations, ownership change, board change, monitoring mechanism change, and key personnel turnover. Leveraging a transaction cost perspective, we investigate how changing environmental conditions (i.e., demand uncertainty and technological uncertainty) and unpredictable partner actions (i.e., behavioral uncertainty) trigger ex post governance adaptations in alliances, and how these adaptations in turn affect alliance performance. Using data collected from 178 partner firms in China, we find that the partner firms will undertake more extensive alliance adaptations as demand uncertainty and behavioral uncertainty increase. However, while the extent of alliance adaptations increases as technological uncertainty increases, there is a threshold level of technological uncertainty beyond which the extent of alliance adaptations decreases. The results also suggest that although alliance adaptations enhance alliance performance, this positive impact may diminish after alliance adaptations reach a certain threshold level. Overall, we contribute to the alliance evolution literature by focusing on why partner firms undertake alliance adaptations and how they benefit from these ex post governance adaptations.

An organizational capability perspective on multi-unit franchising

Previous research on multi-unit franchising (MUF) has primarily focused on agency and transaction cost perspectives. The present study develops and tests an organizational capability (OC) model of the franchisor’s choice of MUF. According to the OC view, the franchisor gains a competitive advantage by exploration and exploitation of firm-specific resources and capabilities. We hypothesize that, if the franchisor expects to obtain a competitive advantage resulting from higher exploration and exploitation capabilities when using MUF as opposed to single-unit franchising, the franchisor will more likely choose MUF as a governance mode of the franchise system. Based on empirical data from the German and Swiss franchise sectors, the results of the regression analysis support these hypotheses. Our main contribution to the franchise literature is the development of an OC model of the franchisor’s choice of MUF that complements the existing organizational economics explanation of MUF.

The transaction costs perspective on international supply chain management; evidence from case studies in the manufacturing industry in the Netherlands

Transaction costs are barriers for internationalisation processes. This paper investigates the practical relevance of transaction costs economics (TCE) for international supply chain management (SCM) in this era of globalisation, which is characterised by splitting up the supply chain in more and more parts. The analysis is based on data from in-depth interviews with seven manufacturing companies in the Netherlands which are actually engaged in this modern way of organising production. It is shown that the balance between transaction costs and sheer production costs (transformation costs) plays a prominent role in the strategic decisions on how and where to organise production. Especially intangible (or ‘soft’) transaction costs are important in this respect. The analysis provides insight in practical experience in the manufacturing industry in the Netherlands with transaction costs and shows how transaction costs affect decisions on transaction management, personnel policy and internationalisation of R&D. This study is to our knowledge the first to confront the theory of TCE with practice of manufacturing firms in their internationalisation decisions using in-depth interviews instead of survey data.

Platform investment strategy on reducing transaction costs

PurposeThis paper aims to investigate the investment strategy of a two-sided platform on reducing transaction costs of two user sides and to study the pricing problem of the platform.Design/methodology/approachMathematical derivation is used to compute the optimal decisions of a two-sided platform on pricing and investment. Numerical analysis is used to illustrate the findings.FindingsIt is found that the demand of one user side decreases in the maximal transaction costs reduction to this side but increases in the maximal transaction costs reduction to the other side. It is also found that a platform should never choose the investment in such a way that the maximal transaction costs reductions of two user sides are the same.Research limitations/implicationsSeveral limitations exist in this paper, most of which exist due to the assumptions. These limitations could be good research directions in the future. For example, only one platform’s decision is considered, and platforms’ competition is not taken into account. Considering other platforms’ competition, the decisions of the users and the platform would be different.Originality/valueFrom the transaction costs perspective, this paper finds that a platform should never choose the investment in such a way that the maximal transaction costs reductions of two user sides are the same. This conclusion has not been found in previous literature.

Traceability and risks: an extended transaction cost perspective

PurposeThe aim of the paper is to investigate the determinants leading firms to choose among different voluntary standards within food supply chains. In specific, the authors explored the role of transaction risks, i.e. internal and exogenous risks, in the adoption of different traceability standards.Design/methodology/approachA survey was conducted within the Italian population of 216 food-processing firms that adopt voluntary traceability schemes. The identification of different transaction risks was based on the literature on supply chain management and transaction cost economics. An ordinal regression model was used in the analysis.FindingsEmpirical results highlight that the transaction risks perceived by food firms play a significant role on the kind of traceability schemes to adopt. There is a positive link between internal risks and the decision to implement complex schemes. Moreover, a negative relationship between the perceived exogenous risks and the complexity of the standard adopted is also observed. Exogenous transaction risk lead to the implementation of standards which do not imply strong co-ordination. On the contrary, internal risks imply complex schemes that lead to closer supply chain relationships.Research limitations/implicationsThe analysis is limited to cross-sectional data for a single country, and further investigation would help assess the generalisation of the findings.Practical implicationsThe analysis can be considered a useful framework to orient firms strategic decisions towards the most appropriate voluntary standard to adopt for an efficient management of vertical relationships within food supply chains.Originality/valueThe present analysis is the first attempt to explain the determinants leading firms to choose among different kinds of voluntary standards within food supply chains. The approach used reveals that transaction risks can be considered a useful framework to explain firms’ strategic decisions related to the kind of schemes to adopt.

Using transaction cost economics to explain open innovation in start-ups

Purpose The basic concept of transaction cost theory is that firms like to conduct transactions in a channel with lower transaction costs. Therefore, the purpose of this paper is to use the transaction cost perspective to identify which conditions cause companies to choose between outbound open innovation (hierarchy governance) and inbound open innovation (market governance). Design/methodology/approach Accordingly, transaction cost economics was used to relate the choice and implementation of open innovation using a sample of 250 electronics and information start-ups in China. Structural equation modeling was used to conduct confirmatory factor analysis to evaluate measurement model, while logistic regression analysis was used to test the hypotheses. Findings As expected, the dedicated asset specificity, human asset specificity, behavioral uncertainty, transaction frequency, and small number exchange were positively associated with outbound open innovation. Originality/value The contribution of this paper lies in explaining the role played by transaction cost economics in the process of open innovation for start-ups through empirical analysis.

The Impact of IT–Coordination Costs on Firm Size and Productivity: Transaction Cost Perspective

ABSTRACTThe primary objective of this study is to examine the influence of information technology (IT) on organizational coordination costs using the theoretical lens of transaction cost economics. In doing so, the study addresses the following research questions: Does IT matter? How and why does IT matter to firms? How does coordination cost mediate the relationship between IT spending and firm productivity, and how does it influence IT spending and firm size when considering the information product industries (IPI) and the physical product industries (PPI)? To address these research questions, we use IT spending, coordination costs, firm size, and firm productivity with firm-level data, using Information Week and the Compustat data set in the United States, from 2011 to 2013. A SmartPLS path analysis was used to test the research hypotheses. The results show that use of the firm’s IT spending decreases coordination costs. Likewise, the results show that IT spending also decreases firm size. On the other hand, the results also show that IT spending does not significantly improve a firm’s productivity. Furthermore, the results indicate strong evidence that coordination costs act as a mediator between IT spending and firm size in IPI firms. Coordination costs also mediate the relationship between IT spending and firm productivity in IPI firms. Overall, this study sheds light on the importance of the impact of IT on reducing coordination costs as well as on firm size and firm productivity. This must be especially considered in regard to interorganizational coordination.

Institutional barriers to redevelopment of urban villages in China: A transaction cost perspective

Compared with other newly developed urban areas, urban villages in China are in greater need for redevelopment. Governed by institutions inherited from the local-state-dominated dual land ownership system, the redevelopment of these villages follows a state-led land requisition system, which confers development rights to local governments while limiting the rights of village collectives. Two other complementary arrangements include the top-down land use planning system and the state-monopolized land transfer system. Although these institutional arrangements favor land conversion in greenfield development, they cannot be easily implemented in the village redevelopment process. By reviewing the redevelopment policies and practices, this study empirically examines the redevelopment of urban villages in Shenzhen during the policy period from 2004 to 2009 and adopts the transaction cost perspective in analyzing how state-led institutional arrangements have resulted in many time-consuming transactions and hindered the redevelopment of urban villages.

Re-examining British Welfare-to-Work Contracting using a Transaction Cost Perspective

AbstractThis article critically reflects on the administration of activation services in the UK. It describes the welfare-to-work quasi-market and focuses on the impact of 2008 commissioning reforms that advocated amalgamating small contracts into larger ‘lots’, creating a top tier of prime providers to manage subcontractors, and increasing outcome-based funding. Drawing on transaction cost theory and empirical case study research, it is demonstrated that these changes led to an increase in a range of activities and costs for competing service providers that undermine government rhetoric of choice and efficiency. This article adds to the existing literature on welfare-to-work contracting by demonstrating the difficulties some organisations face in the context of welfare markets and questioning public service out-sourcing processes. It concludes by reflecting on the implications for future market-based social policy reforms.

On the Qing Tributary System from the Per-spective of Transaction Cost

The Qing tributary system, which is centered on China, has been regarded as a universally acknowledged and distinguished regional order in pre-modern East Asian. This system is made up of a series of informal, formal institutions and the system of governance. Such system can get a good explanation by using the transaction cost theory of new institutional economics. It is obvious that the available literature about the tributary system rarely involves transaction cost theory; so this paper tries to analyze the Qing tributary system from this perspective and break the traditional analytical paradigm of international relations scholars, and then tries to build and sum up the two explainable models about the system of rising and recession.

Asset Specificity in the Industrial Waste Management Industry

This study adopted a transaction cost perspective to examine the intra-organizational application of asset specificity in the industrial waste management industry and the potential tension it may cause to local and cross-strait organizations with respect to business operations. The industrial waste management industry faced considerable changes in the 1990s. While seemingly identical, the specific forms of asset specificity applied in the industry before and after the 1990s were actually very different, meaning that the operational flexibility of intra-organizational asset specificity could be explained by institutional changes. In addition to reduced transaction costs and skill development, specific access specificity was found to have an important and complex influence on the industry.

Trust as Governance Tool in Hybrid Organizations: A Case Study for the Dance Industry in the Netherlands

&lt;p&gt;The organization of Electronic Dance Music (EDM) events requires much flexibility, due to the need to be able to quickly respond to new market trends. It induces high specificity in organizing these events. Our case study for the Netherlands, which is the world’s market leader in hosting these events, shows that hybrid forms of cooperation between producers facilitate this flexibility and adaptability. From the perspective of transaction cost economics this article focuses on the role of trust as governance tool of hybrid organizations. Trust between the collaborating event agencies has a reciprocal effect on perception of risk, therefore decreasing the need for comprehensive contractual governance or hierarchical control. We show that different types of trust can be &lt;em&gt;sufficient&lt;/em&gt; as governance mechanism. The EDM event industry is a community-like creative sector in which calculative drivers such as repeated interaction and the importance of behavioural reputation add to trustworthiness between partners. In addition, social drivers such as a shared artistic vision lead to incentives to behave according to ex ante agreements in the design and creation of new, ground-breaking music sensations. From that perspective, we identify the factors that enhance the development of trustworthiness between partners in a hybrid organization.&lt;/p&gt;