A Transaction Cost Analysis of Hybrid Forms of Contracting: Implications for Prediction and Performance,
AIR FORCE INST OF TECH WRIGHT-PATTERSON AFB OH
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Transaction Cost Economics TCE theories of exchange have proven to be a useful tool for understanding a variety of economic relationships. The TCE model has been especially useful in explaining the boundaries of economic institutions with regard to make or buy decisions. However, the markets and hierarchies paradigm has been limited in explaining non- market and non-hierarchical relationships which are termed hybrid forms of governance. TCE theory indicates that as assets become more specific, as uncertainty becomes more acute and as transactions become incomplete, the hierarchical form of governance becomes predominant so that control of the transaction can be internalized to the organization. However, evidence suggests that this is not the case in many transactions where long-term contracts substitute for either the market or hierarchy form of governance. Long-term contracts suffice if they sufficiently allow parties to maintain control of the transaction through the contract. Consequently, long-term contracts have to be complete enough to legally allow control while negating opportunism of the transactors. The more incomplete the contract, the less control the transactors have in the relationship. While incompleteness of long-term contracts is an important concept in the hybrid form of TCE theory, neither it nor the efficiency of these long-term contracts has been adequately addressed in previous research.
- Economics and Cost Analysis
- Personnel Management and Labor Relations