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Revisiting agency and transaction costs theory predictions on vertical financial ownership and contracting: electronic integration as an organizational form choice

Author

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  • Kaouthar Lajili

    (School of Management, University of Ottawa, 136 Jean-Jacques Lussier, Ottawa, Ontario, Canada K1N 6N5)

  • Joseph T. Mahoney

    (Department of Business Administration, College of Business, University of Illinois at Urbana-Champaign, 339 Wohlers Hall, 1206 South Sixth Street, Champaign, IL 61820, USA)

Abstract
This paper provides an organizational economics foundation to guide managers in matching the comparatively more efficient organizational mode with transactional characteristics such as: (1) the degree of (human capital) asset specificity involved in the transaction, (2) the degree of uncertainty surrounding the transaction, and (3) the number of trading partners (suppliers and buyers) in the vertical supply chain. The key role of technology, and more specifically the e-business infrastructure and its effects on organizational mode choice, is highlighted. The main results from this analysis suggest that changes in information technology are changing the nature of transaction costs leading to more efficient management through an electronic integration solution thus favoring contracting and outsourcing than would have been technologically possible when Williamson's Markets and Hierarchies (Markets and Hierarchies: Analysis and Antitrust Implications. Free Press: New York, 1975) was published. It is emphasized that the transaction cost economics principles are durable but that the breathless advances in information technology, especially in the past decade, have comparatively favored lower transaction costs of markets over hierarchies. Copyright © 2006 John Wiley & Sons, Ltd.

Suggested Citation

  • Kaouthar Lajili & Joseph T. Mahoney, 2006. "Revisiting agency and transaction costs theory predictions on vertical financial ownership and contracting: electronic integration as an organizational form choice," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 27(7), pages 573-586.
    • Handle: RePEc:wly:mgtdec:v:27:y:2006:i:7:p:573-586
    DOI: 10.1002/mde.1275
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    References listed on IDEAS

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    Cited by:

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    3. Ng, Desmond W. & Salin, Victoria, 2012. "An Institutional Approach to the Examination of Food Safety," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 15(2), pages 1-26, May.
    4. Kim, Sung Min & Mahoney, Joseph T., 2008. "Resource Co-specialization, Firm Growth, and Organizational Performance: An Empirical Analysis of Organizational Restructuring and IT Implementations," Working Papers 08-0107, University of Illinois at Urbana-Champaign, College of Business.
    5. Gui, Emi Minghui & Diesendorf, Mark & MacGill, Iain, 2017. "Distributed energy infrastructure paradigm: Community microgrids in a new institutional economics context," Renewable and Sustainable Energy Reviews, Elsevier, vol. 72(C), pages 1355-1365.
    6. Chou, Yon-Chun & Huang, Hsing-Yi & Jahn, John & Kuo, Chien-Hung, 2010. "A framework of economic analysis for tapered technology-manufacturing alliances," International Journal of Production Economics, Elsevier, vol. 127(2), pages 249-261, October.
    7. Tate, Wendy L. & Ellram, Lisa M. & Bals, Lydia & Hartmann, Evi, 2009. "Offshore outsourcing of services: An evolutionary perspective," International Journal of Production Economics, Elsevier, vol. 120(2), pages 512-524, August.
    8. Mahka Moeen & Deepak Somaya & Joseph T. Mahoney, 2013. "Supply Portfolio Concentration in Outsourced Knowledge-Based Services," Organization Science, INFORMS, vol. 24(1), pages 262-279, February.
    9. Cadot, Julien, 2014. "Agency costs of vertical integration: the case of wine business in France," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 182671, European Association of Agricultural Economists.
    10. Doris Morales & Ahmad H. Juma´h & Antonio Llorens-Rivera & Félix Cue & Ángel Ruiz, 2012. "Tendencias del traslado de actividades en las manufactureras en Puerto Rico y el título de propiedad sobre la planta física, 2005-2011," Economic Analysis Working Papers (2002-2010). Atlantic Review of Economics (2011-2016), Colexio de Economistas de A Coruña, Spain and Fundación Una Galicia Moderna, vol. 2, pages 1-1, December.
    11. Bucheli, Marcelo & Mahoney, Joseph T. & Vaaler, Paul M., 2007. "Chandler's Living History: The Visible Hand of Vertical Integration in 19th Century America Viewed under a 21st Century Transaction Costs Economics Lens," Working Papers 07-0111, University of Illinois at Urbana-Champaign, College of Business.
    12. Markus Menz & Sven Kunisch & Julian Birkinshaw & David J. Collis & Nicolai J. Foss & Robert E. Hoskisson & John E. Prescott, 2021. "Corporate Strategy and the Theory of the Firm in the Digital Age," Journal of Management Studies, Wiley Blackwell, vol. 58(7), pages 1695-1720, November.
    13. Hill, John W. & Zeller, Thomas L., 2008. "The new value imperative for privately held companies: The why, what, and how of value management strategy," Business Horizons, Elsevier, vol. 51(6), pages 541-553.
    14. Tharun Dolla & Boeing Laishram, 2019. "Bundling in public–private partnership projects – a conceptual framework," International Journal of Productivity and Performance Management, Emerald Group Publishing Limited, vol. 69(6), pages 1177-1203, December.
    15. Mikko Ketokivi & Joseph T. Mahoney, 2020. "Transaction Cost Economics As a Theory of Supply Chain Efficiency," Production and Operations Management, Production and Operations Management Society, vol. 29(4), pages 1011-1031, April.
    16. Anne Yenching Liu & Sungmin Lin, 2023. "Service for specialized and digitalized: Consumer switching perceptions of E‐commerce in specialty retail," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(3), pages 1521-1533, April.
    17. Moeen, Mahka & Somaya, Deepak & Mahoney, Joseph T., 2011. "Supply Portfolio Concentration in Outsourced Knowledge-Based Services," Working Papers 11-0106, University of Illinois at Urbana-Champaign, College of Business.
    18. Gebauer, Judith & Mahoney, Joseph T., 2013. "Joining Supply and Demand Conditions of IT Enabled Change: Toward an Economic Theory of Inter-firm Modulation," Working Papers 13-0100, University of Illinois at Urbana-Champaign, College of Business.
    19. Julien Cadot, 2015. "Agency costs of vertical integration—the case of family firms, investor-owned firms and cooperatives in the French wine industry," Agricultural Economics, International Association of Agricultural Economists, vol. 46(2), pages 187-194, March.
    20. repec:bla:jomstd:v:47:y:2010:i:s1:p:859-883 is not listed on IDEAS
    21. Chris R. Meyer & David G. Cohen & Sudhir Nair, 2017. "Some have to, and some want to: Why firms adopt a post-industrial form," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 21(2), pages 533-559, June.
    22. Kaouthar Lajili, 2015. "Embedding human capital into governance design: a conceptual framework," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 19(4), pages 741-762, November.

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