Transaction cost analysis

Transaction cost theory is one of the most widely used theories in marketing, management, and economics. The focus of the theory is on explaining how firms organize transactions. The rules by which transactions are organized is called governance. A wide variety of strategic decisions of firms, such as outsourcing, the mode of organizing exports, the use of crowdsourcing, or partner selection efforts, can be analyzed and understood using transaction cost theory. The basic argument of transaction cost theory is that firms economize on costs by choosing a form of governance that minimizes production and transaction costs. We discuss the origins and uses of the theory, critical variables, assumptions, and limitations.

Value creation in capital waterway projects: Application of a transaction cost and transaction benefit framework for the Miami River and the New Orleans Inner Harbour Navigation Canal

Waterways have many more ties with society than as a medium for the transportation of goods alone. Waterway systems offer society many kinds of socio-economic value. Waterway authorities responsible for management and (re)development need to optimize the public benefits for the investments made. However, due to the many trade-offs in the system these agencies have multiple options for achieving this goal. Because they can invest resources in a great many different ways, they need a way to calculate the efficiency of the decisions they make. Transaction cost theory, and the analysis that goes with it, has emerged as an important means of justifying efficiency decisions in the economic arena. To improve our understanding of the value-creating and coordination problems for waterway authorities, such a framework is applied to this sector. This paper describes the findings for two cases, which reflect two common multi trade-off situations for waterway (re)development. Our first case study focuses on the Miami River, an urban revitalized waterway. The second case describes the Inner Harbour Navigation Canal in New Orleans, a canal and lock in an industrialized zone, in need of an upgrade to keep pace with market developments. The transaction cost framework appears to be useful in exposing a wide variety of value-creating opportunities and the resistances that come with it. These insights can offer infrastructure managers guidance on how to seize these opportunities.

The transaction cost economics theory of the family firm: family-based human asset specificity and the bifurcation bias

We develop a transaction cost economics theory of the family firm, building upon the concepts of family-based asset specificity, bounded rationality, and bounded reliability. We argue that the prosperity and survival of family firms depend on the absence of a dysfunctional bifurcation bias. The bifurcation bias is an expression of bounded reliability, reflected in the de facto asymmetric treatment of family vs. nonfamily assets (especially human assets). We propose that absence of bifurcation bias is critical to fostering reliability in family business functioning. Our study ends the unproductive divide between the agency and stewardship perspectives of the family firm, which offer conflicting accounts of this firm type's functioning. We show that the predictions of the agency and stewardship perspectives can be usefully reconciled when focusing on how family firms address the bifurcation bias or fail to do so.

Networks and RegionalCompetitiveness: Towards a Transaction Cost Approach of Small-Scale Cooperation

A preoccupation with competition often dominates the study of governance. A focus on competition often unnecessarily precludes the possibility that regional institutions can suspend competition in certain areas and facilitate cooperation among potential rivals, thereby potentially contributing to their mutual success. In many ways companies cooperating through these types of networks have a greater degree of flexibility than firms which are forced to rely solely on hierarchies or markets for solutions to their problems. In order to fully understand how such networks work, this article first parses out differences in definitions of networks in order to understand how the type of network mentioned above actually differs from other uses of this term. Then it develops a theory of governance that goes beyond hierarchies and markets by demonstrating how this type of network can lead to reductions in transaction costs. This claim is illustrated on hand from examples of alternative forms of organization in Germany and Italy.

Monetary unions and the transaction cost savings of a single currency

This paper studies the transaction cost savings of moving froma multi-currency exchange system to a single currency one. Theanalysis concentrates exclusively on the transaction andprecautionary demand for money and abstracts from any othermotives to hold currency. A continuous-time, stochastic Baumol-like model similar to that in Frenkel and Jovanovic (1980) isgeneralized to include several currencies and calibrated to fitEuropean data. The analysis implies an upper bound for thesavings associated with reductions of transaction costs derivedfrom the European Monetary Union of approximately 0.6\% of theCommunity GDP. Additionally, the magnitudes of the brokeragefee and the volatility of transactions, whose estimation hastraditionally been difficult to address empirically, areapproximated for Europe.

The Boundaries of a Firm in the Pulp and Paper Industry: Complementarities of the Resource-Based View and Transaction Cost Economics

Tämän tutkimuksen tarkoituksena on tutkia sellu- ja paperiteollisuuden toimintojen luonnetta sekä miten yrityksen rajapinnat ovat muodostuneet ko. teollisuudenalalla. Tutkimus on eksploratiivinen ja luonteeltaan kvalitatiivinen. Tutkimuksen aineisto kerättiin yrityksissä tehdyillä teemahaastatteluilla. Sellu- ja paperitehtaan toimintojen analysoinnissa käytetään resurssiperusteista näkemystä ja transaktiokustannusteoriaa. Tutkimuksen yritysten rakennetta voidaan pitää varsin konservatiivisena. Teoreettinen kehys pystyi selittämään varsinaisen tuotannon järjestämistä varsin hyvin. Tukitoiminnoissa löytyi ristiriitoja teorian ja todellisuuden välillä. Tuotantotoiminnot kannattaa pitää yrityksen sisällä, koska ne täyttävät VRIN-attribuutit ja niihin liittyy korkeita transaktiokustannuksia. Suurin osa tukitoiminnoista voidaan luokitella triviaaleiksi. Joitain tukitoimintoja voidaan kuitenkin luokitella strategisesti tärkeiksi, ja voidaan päätellä, että ne pitäisi pitää yrityksen sisällä. Tässä suhteessa tulokset olivat kuitenkin ristiriitaisia, ja lisätutkimuksia tarvittaisiin lopullisten johtopäätösten tekemiseen.

The Boundaries of the Firm from the Extended Transaction Cost Economics Point of View - Empirical Study

Tutkimuksen tavoitteena oli tutkia yrityksen rajoja laajennetun transaktiokustannusteorian näkökulmasta. Tutkimus oli empiirinen tutkimus, jossa tutkittiin viittä toimialaa. Tutkimuksen tavoitteena oli verrata paperiteollisuutta teräs-, kemian-, ICT- ja energiateollisuuteen. Aineisto empiiriseen osioon kerättiin puolistrukturoiduilla teemahaastatteluilla. Tutkimus osoitti, että laajennettu transaktiokustannusteoria soveltuu hyvinyrityksen rajojen määrittelyyn. Staattinen transaktiokustannusteorian selitysaste ei ole riittävä, joten dynaaminen laajennus on tarpeellinen. Tutkimuksessa ilmeni, että paperiteollisuudella verrattuna muihin toimialoihin on suurimmat haasteet tehokkaiden rajojen määrittämisessä.

The impact of contractor selection method on transaction costs: a review

The basic premise of transaction-cost theory is that the decision to outsource, rather than to undertake work in-house, is determined by the relative costs incurred in each of these forms of economic organization. In construction the "make or buy" decision invariably leads to a contract. Reducing the costs of entering into a contractual relationship (transaction costs) raises the value of production and is therefore desirable. Commonly applied methods of contractor selection may not minimise the costs of contracting. Research evidence suggests that although competitive tendering typically results in the lowest bidder winning the contract this may not represent the lowest project cost after completion. Multi-parameter and quantitative models for contractor selection have been developed to identify the best (or least risky) among bidders. A major area in which research is still needed is in investigating the impact of different methods of contractor selection on the costs of entering into a contract and the decision to outsource.