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.

Information asymmetry and transaction costs in a cross-cultural business transaction

The intent of this paper is to provide a practitioners insight into the present and foreseeable future of problem of transaction cost economics related to culture and business etiquette that may increase the of complexity of business communication. We will also explore whether it impacts participant's mindsets regarding opportunistic or passive aggressive behavior. We will study the role of culture, ethics, information asymmetry, and legal systems regarding their importance towards the business contracts and lack of knowledge in local environments. We will make connections to contract theory strategies and objectives and recommend business practices. Furthermore, economic theory explores the role of the impossibility of the perfect contract. Historical and present day operational factors are examined for the determination of forward-looking contract law indications worldwide. This paper is intended provide a practitioners view with a global perspective of a multinational, mid-sized and small corporations giving consideration in a non-partisan and non-nationalistic view, yet examines the individual characteristics of the operational necessities and obligations of any corporation. The study will be general, yet cite specific articles to each argument and give adequate consideration to the intricacies of the global asymmetry of information. This paper defends that corporations of any kind and size should be aware of the risk of international business etiquette and cultural barriers that might jeopardize the savings you could obtain from engaging international suppliers.

A tranzakciós költségek és a szabványosítás kapcsolata (Relationship between transaction costs and standardization)

Az elmúlt néhány évtizedben a szabványosítás terén igen komoly változások mentek végbe. Ugrásszerűen megnőtt a szabványok száma, és jelentősen átalakult a szabványosítás folyamata is. Ezzel párhuzamosan a téma gazdasági hatásaival foglalkozó kutatások száma is megsokszorozódott, ami elsősorban a hálózati externáliák irodalmának robbanásszerű gyarapodásának köszönhető. Jelen tanulmány – az elméletek fősodrától eltérően – a tranzakciós költségek elméletében (TKE) helyezi el a szabványosítást. A szabványok és a tranzakciós költségek kapcsolatáról már születtek korábban is tanulmányok, de ezek a szabványoknak a tranzakciós költségekre gyakorolt hatásaira fókuszáltak. A tanulmány ezzel szemben arra helyezi a hangsúlyt, hogy azonosítsa a tranzakciós költségeknek a szabványosításra gyakorolt hatásait. A kutatás célja, hogy olyan elméleti alapot adjon, amelyben a témakör átfogóan elemezhető. A fő kutatási kérdés az, hogy mitől függ az, hogy melyik mechanizmus kereteiben érdemes a szabványosítást lebonyolítani. ________ Significant changes have characterized the last few decades of standardization. The number of standards has dramatically increased and processes of standardization have also changed a lot. At the same time the amount of researches that are concerned with the economic impact of standardization has also multiplied due to the boom in the literature of network externalities. Unlike the mainstream, this paper places standardization in the theory of transaction cost economics. Although there are earlier papers that are concerned with the relationship between standards and transaction costs, these studies focus on the impact of standards on transaction costs. In contrast, this paper lays emphasis on the identification of the impact of transaction costs on standardization. This study aims to provide a theoretical basis for the comprehensive analyses. The main research question: What determines which coordination mechanism is used to evolve a standard?

Essays on irrigation development, farm production and unaccounted costs : theory and empirical evidence

A review of the literature related to issues involved in irrigation induced agricultural development (IIAD) reveals that: (1) the magnitude, sensitivity and distribution of social welfare of IIAD is not fully analysed; (2) the impacts of excessive pesticide use on farmers’ health are not adequately explained; (3) no analysis estimates the relationship between farm level efficiency and overuse of agro-chemical inputs under imperfect markets; and (4) the method of incorporating groundwater extraction costs is misleading. This PhD thesis investigates these issues by using primary data, along with secondary data from Sri Lanka. The overall findings of the thesis can be summarised as follows. First, the thesis demonstrates that Sri Lanka has gained a positive welfare change as a result of introducing new irrigation technology. The change in the consumer surplus is Rs.48,236 million, while the change in the producer surplus is Rs. 14,274 millions between 1970 and 2006. The results also show that the long run benefits and costs of IIAD depend critically on the magnitude of the expansion of the irrigated area, as well as the competition faced by traditional farmers (agricultural crowding out effects). The traditional sector’s ability to compete with the modern sector depends on productivity improvements, reducing production costs and future structural changes (spillover effects). Second, the thesis findings on pesticides used for agriculture show that, on average, a farmer incurs a cost of approximately Rs. 590 to 800 per month during a typical cultivation period due to exposure to pesticides. It is shown that the value of average loss in earnings per farmer for the ‘hospitalised’ sample is Rs. 475 per month, while it is approximately Rs. 345 per month for the ‘general’ farmers group during a typical cultivation season. However, the average willingness to pay (WTP) to avoid exposure to pesticides is approximately Rs. 950 and Rs. 620 for ‘hospitalised’ and ‘general’ farmers’ samples respectively. The estimated percentage contribution for WTP due to health costs, lost earnings, mitigating expenditure, and disutility are 29, 50, 5 and 16 per cent respectively for hospitalised farmers, while they are 32, 55, 8 and 5 per cent respectively for ‘general’ farmers. It is also shown that given market imperfections for most agricultural inputs, farmers are overusing pesticides with the expectation of higher future returns. This has led to an increase in inefficiency in farming practices which is not understood by the farmers. Third, it is found that various groundwater depletion studies in the economics literature have provided misleading optimal water extraction quantity levels. This is due to a failure to incorporate all production costs in the relevant models. It is only by incorporating quality changes to quantity deterioration, that it is possible to derive socially optimal levels. Empirical results clearly show that the benefits per hectare per month considering both the avoidance costs of deepening agro-wells by five feet from the existing average, as well as the avoidance costs of maintaining the water salinity level at 1.8 (mmhos/Cm), is approximately Rs. 4,350 for farmers in the Anuradhapura district and Rs. 5,600 for farmers in the Matale district.

Information sharing with key suppliers : a transaction cost theory perspective

Purpose: The purpose of this paper is to explain variations in discretionary information shared between buyers and key suppliers. The paper also aims to examine how the extent of information shared affects buyers’ performance in terms of resource usage, output, and flexibility. ----- ----- Design/methodology/approach: The data for the paper comprise 221 Finnish and Swedish non-service companies obtained through a mail survey. The hypothesized relationships were tested using partial least squares modelling with reflective and formative constructs.----- ----- Findings: The results of the study suggest that (environmental and demand) uncertainty and interdependency can to some degree explain the extent of information shared between a buyer and key supplier. Furthermore, information sharing improves buyers’ performance with respect to resource usage, output, and flexibility.----- ----- Research limitations/implications: A limitation to the paper relates to the data, which only included buyers.Abetter approach would have been to collect data from both, buyers and key suppliers. Practical implications – Companies face a wide range of supply chain solutions that enable and encourage collaboration across organizations. This paper suggests a more selective and balanced approach toward adopting the solutions offered as the benefits are contingent on a number of factors such as uncertainty. Also, the risks of information sharing are far too high for a one size fits all approach.----- ----- Originality/value: The paper illustrates the applicability of transaction cost theory to the contemporary era of e-commerce. With this finding, transaction cost economics can provide a valuable lens with which to view and interpret interorganizational information sharing, a topic that has received much attention in the recent years.

Modelling the intention to adopt cloud computing services : a transaction cost theory perspective

This paper uses transaction cost theory to study cloud computing adoption. A model is developed and tested with data from an Australian survey. According to the results, perceived vendor opportunism and perceived legislative uncertainty around cloud computing were significantly associated with perceived cloud computing security risk. There was also a significant negative relationship between perceived cloud computing security risk and the intention to adopt cloud services. This study also reports on adoption rates of cloud computing in terms of applications, as well as the types of services used.

Fisheries co-management and transaction costs

Fisheries co-management is increasingly seen as a solution to the problems of resource use conflicts and overexploitation. The importance of transactions costs may not have been given adequate attention. The transaction costs are 1) information costs, 2) collective decisionmaking tools, and 3) collective operational costs. The various components of transaction costs of fisheries co-management systems are described in this paper. These costs need to be determined for evaluating the feasibility of a co-managed fishery compared to a centrally managed one.

Measuring transaction costs of fisheries co-management in San Salvador Island, Philippines

It is generally accepted that co-management systems are more cost-effective than centralized management of natural resources. However, no attempts have been made to empirically verify the transaction costs involved in fisheries co-management. Some estimates of transaction costs of fisheries co-management in San Salvador Island, Philippines, are presented in this paper. These estimates are used to compare the various transaction costs in co-managed and in centrally managed fisheries in San Salvador Island.

Assessing the Transaction Costs of Firms in the EU ETS: Lessons form Ireland

Until now, there has been little empirical evidence that EU Emissions Trading Scheme (ETS) transaction costs are incurred at firm level. The transaction costs (internal costs, capital costs, consultancy and trading costs) incurred by Irish firms under the EU ETS during its pilot phase (2005-2007) were measured and analysed. Evidence for the sources of transaction costs, their magnitude and the distribution of costs shows that these were mainly administrative in nature. Considerable variation in costs was found due to economies of scale, as the costs per tonne of CO2 were lower for participants with larger allocations. For the largest firms - accounting for over half the emissions - average transaction costs were €0.05 per tonne. However, for small firms, average transaction costs were €2.02 - over 18% of the current allowance price. This supports the concerns that transaction costs are excessive for smaller participants. The immediate policy implication is that additional attention will be needed to address different sizes of firms, number of installations per firm, and the size of the initial allocations.

Transaction Costs and Organizational Learning in Strategic Oursourcing Relationships

The present paper examines the role of organisational learning and transaction costs economics in strategic outsourcing decisions. Interorganisational learning is critical to competitive success, and organisations often learn more effectively by collaborating with other organisations. However, learning processes may also complicate the process of forming interorganisational partnerships which may increase transaction costs. Based on the literature, the authors develop refutable implications for outsourcing supply chain logistics and a sample of 121 firms in the supply chain logistics industry is used to test the hypotheses. The results show that trust and transaction costs are significant and substantial drivers of strategic outsourcing of supply chain logistics (a strategic flexibility action). Learning intent and knowledge acquisition have no significant influence on the decision to outsource supply chain logistics. The paper concludes with a discussion of the different and often conflicting implications for managing interorganisational learning processes.

Customs-Related Transaction Costs, Firm Size and International Trade Intensity

Customs are generally perceived as a time-consuming impediment to international trade. However, few studies have empirically examined the determinants and the impact of this type of government-imposed transaction costs. This paper analyses the role of firm size as a determinant of customs-related transaction costs, as well as the effect of firm size on the relationship between these costs and the international trade intensity of firms. The results of this study indicate that customs-related transaction costs repress international trade activities of firms, even at low levels of these costs. The paper identifies transaction-related economies of scale, simplified customs procedures and advanced information and communication technology as main determinants of customs-related transaction costs. It is shown that when these factors are taken into account, firm size has no effect on customs-related transaction costs. Policy implications are considered for firm strategy and public policy.

Optimal dividend strategies for a compound Poisson risk process under transaction costs and power utility

We characterize the value function of maximizing the total discounted utility of dividend payments for a compound Poisson insurance risk model when strictly positive transaction costs are included, leading to an impulse control problem. We illustrate that well known simple strategies can be optimal in the case of exponential claim amounts. Finally we develop a numerical procedure to deal with general claim amount distributions.