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Article
Publication date: 1 January 1998

Terry Burke

Uncertainty means that transaction costs have to be incurred by organisations whenever they make an agreement. These costs include time and money spent searching, drawing up and…

Abstract

Uncertainty means that transaction costs have to be incurred by organisations whenever they make an agreement. These costs include time and money spent searching, drawing up and enforcing contracts and in dealing with contingencies. The concept of transaction costs is traced from its originator, economist Ronald Coase, to its more recent development by David Kreps. Good reputations, themselves a product of successful corporate communications activities, tend to reduce internal and external transaction costs. Given a competitive environment those firms with lower transaction costs, as a result of high reputations, will tend to survive better than those with weak ones.

Details

Corporate Communications: An International Journal, vol. 3 no. 1
Type: Research Article
ISSN: 1356-3289

Keywords

Article
Publication date: 1 April 1997

Daniel C. Bello, Shirish P. Dant and Ritu Lohtia

Practitioners often are confused by theories that offer ambiguous prescriptions for designing the institutional forms or governance structures in which business activities are…

2994

Abstract

Practitioners often are confused by theories that offer ambiguous prescriptions for designing the institutional forms or governance structures in which business activities are conducted. Unclear prescriptions for organizing tasks within the main governance alternatives leave key design decisions unguided: which tasks to perform in‐house (hierarchy), which to contract to outside agencies (market), and which to perform jointly by economic units within and outside the firm (hybrid)? A popular current theory ‐ transaction cost analysis ‐ suggests that governance structures should be aligned to tasks in a “mainly transaction cost economizing way.” Argues that the importance of transaction costs is overstated, and that observed patterns of firms’ governance structures suggest that firms also account for other theoretical issues ‐ production costs and strategic considerations ‐ in determining efficient boundaries. Begins by illustrating that transaction costs are not always primary. Then discusses the factors that impact production costs and transaction costs, and reviews certain strategic considerations that impact the choice of governance structure for a task. Offers practitioners guidance in choosing governance structures through a contingency analysis that examines the interaction of production costs, transaction costs, and strategic considerations. Illustrates normative implications for designing governance structures through corporate examples that are driven by both cost and strategy considerations.

Details

Journal of Business & Industrial Marketing, vol. 12 no. 2
Type: Research Article
ISSN: 0885-8624

Keywords

Article
Publication date: 8 August 2016

Geraldine Arbogast Rasheli

The purpose of this paper is to examine the transaction costs involved in managing procurement contracts in the public sector, particularly at the lower and higher level of local…

2171

Abstract

Purpose

The purpose of this paper is to examine the transaction costs involved in managing procurement contracts in the public sector, particularly at the lower and higher level of local governments from the clients’ perspective.

Design/methodology/approach

The paper uses new institutional economics, specifically the transaction cost approach. A multiple case study design was used, in which five local government authorities (LGAs) were selected from the Kigoma and Tanga regions of Tanzania. Interviews with heads of procurement management units, focus groups and secondary sources were used to collect information for lower level LGAs.

Findings

Very high information, negotiation and monitoring transaction costs were revealed at the post-contractual stage for higher levels of local government in all cases. Transaction costs were associated with institutional problems, lack of financial resources and attitudes towards accountability, transparency and competition. It was also found that lower levels of local government are faced with very high transaction costs for all procurement stages due to a lack of procurement contract management capacity among ward and village procurement project committees, low levels of support from higher level LGAs, a lack of simple Swahili-standardised documents and guidelines for lower level procurement contract management which reflect current legal issues and the lack of a legal framework for procurement at the lower level of local government. These costs are associated with poor accountability and a lack of competition, transparency and efficiency throughout public procurement chains.

Research limitations/implications

There is no estimate for quantitative approaches, because it is was difficult to measure transaction costs associated with accountability, transparency and efficiency.

Originality/value

The paper contributes knowledge on qualitative levels of transaction costs for procurement contract management for both higher and lower levels of LGAs from the clients’ viewpoint.

Details

International Journal of Public Sector Management, vol. 29 no. 6
Type: Research Article
ISSN: 0951-3558

Keywords

Article
Publication date: 3 May 2011

Terence Y.M. Lam

Outsourcing is now a common strategy for delivery of property services. Recent reviews of empirical literature find support for the efficiency and cost savings from outsourcing is…

1173

Abstract

Purpose

Outsourcing is now a common strategy for delivery of property services. Recent reviews of empirical literature find support for the efficiency and cost savings from outsourcing is at best mixed. In the housing context, organizations are still sceptical to the real cost benefit and are reluctant to enter into multiyear outsourcing contracts to deliver their housing management and facilities services. This study aims to investigate whether outsourcing can bring significant cost savings to housing services, and if so to explore how the transaction process should be structured in order to optimize the transaction value through minimization of production and transaction costs.

Design/methodology/approach

Single‐case study methodology, based on a typical major housing corporation in Hong Kong, was used to quantitatively examine the impact of outsourcing on cost savings using independent‐samples t‐test, and competition on fees (production cost) using Pearson correlation analysis. Pearson analysis was also conducted to examine the correlation between the levels of transaction costs and the degrees of complexity of housing services.

Findings

The quantitative study found that outsourcing could lead to significant cost savings for housing services in a contestable property service market. The levels of competition had significant negative correlation with the tendered prices, inferring that more competent bidders should be invited for competitive tendering to minimize production cost. Complex services with intensive resident involvement and uncertain scope of works were associated with high monitoring costs, inferring that monitoring resources should be allocated according to the complexity of services to minimize transaction costs. This approach can ensure optimization of transaction value, which is particularly relevant to high‐density developments requiring high transaction costs for performance monitoring of the outsourced housing services.

Research limitations/implications

Whilst cost savings and transaction structure for optimization of transaction value are verified in the context of a representative major housing organization, the results form a baseline on which further research can build to test their significance in many other settings. Ultimately, a more robust transaction value theory can be developed for outsourcing of housing services.

Practical implications

With the findings of this research, housing organizations can make an informed decision to outsource the services. They can also adopt the transaction structure to optimize transaction value from outsourcing, i.e. minimization of production and transaction costs through market competition and allocation of monitoring resources based on the complexity of services.

Originality/value

This study makes economic contribution to corporate outsourcing policy by establishing a transaction structure which policy makers and facilities managers can adopt to optimize cost savings. Consequently, this will benefit the society through optimal use of resources.

Details

Journal of Facilities Management, vol. 9 no. 2
Type: Research Article
ISSN: 1472-5967

Keywords

Article
Publication date: 1 August 1996

Jill E. Hobbs

Observes that supply chain management is a rapidly‐evolving subject which offers many insights into how industries are organized and into the efficiency gains which can be made…

17100

Abstract

Observes that supply chain management is a rapidly‐evolving subject which offers many insights into how industries are organized and into the efficiency gains which can be made under different organizational structures, pointing out that it is an interdisciplinary concept, drawing on aspects of marketing, economics, logistics, organizational behaviour, etc. Presents a framework from the economics literature which may be useful for those interested in understanding and exploring the concept of supply chain management. Describes the origins and development of transaction cost analysis and explains the key concepts of the framework. Discusses the potential effects of transaction costs on vertical co‐ordination within an industry and, hence, on supply chain management. Finally, suggests methods for empiricizing transaction cost analysis, resulting in recommendations for closer co‐operation between researchers and business managers.

Details

Supply Chain Management: An International Journal, vol. 1 no. 2
Type: Research Article
ISSN: 1359-8546

Keywords

Article
Publication date: 3 June 2014

Tamara Peneva Todorova

The purpose of this paper is to weigh the benefits and costs of public property, as opposed to private, from the transaction cost perspective. In the absence of transaction costs

439

Abstract

Purpose

The purpose of this paper is to weigh the benefits and costs of public property, as opposed to private, from the transaction cost perspective. In the absence of transaction costs, private property has clear advantages over public. However, when the true costs of running an economic system are taken into account, the advantages of private property are not so evident and public property may turn out to be the preferred form of ownership. The paper shows that in high-transaction cost sectors and economies such as the newly emerging markets in Eastern Europe, public property is a cheaper way of organizing economic activities, as it can save on transaction costs. The paper demonstrates these virtues of public ownership in relation to market failure, the provision of public goods, natural monopolies and competitive industries with a high degree of market uncertainty, opportunism and asset specificity.

Design/methodology/approach

A qualitative paper discussing the advantages of public over private property in the presence of high-transaction costs.

Findings

Studying different types of market failure the paper finds that public property is advantageous to private in high-transaction cost systems.

Originality/value

Since most of the standard literature emphasizes the advantages of private property, the paper gives an economic explanation to those of public property taking on a new institutional approach and conducting a transaction cost analysis.

Details

International Journal of Social Economics, vol. 41 no. 6
Type: Research Article
ISSN: 0306-8293

Keywords

Article
Publication date: 1 October 1999

Hans Jürgen Drumm

Classical transaction cost theory is not applicable to decisions on HRM or organizational design. This article overcomes such a fruitless situation. First on an operative level…

3021

Abstract

Classical transaction cost theory is not applicable to decisions on HRM or organizational design. This article overcomes such a fruitless situation. First on an operative level the two types of HRM and separately organizational transaction costs will be analyzed and then linked together in a substitutive or cumulative way. Second, transaction cost analysis is extended to the higher level of strategic HRM and organization design. There both types of transaction costs are linked again. Furthermore, they control types and size of HRM and organizational transaction costs on the operative level. As a decision base consequently both levels and both types of transaction cost should be analyzed and determined simultaneously.

Details

Employee Relations, vol. 21 no. 5
Type: Research Article
ISSN: 0142-5455

Keywords

Article
Publication date: 15 July 2014

Huimin Li, David Arditi and Zhuofu Wang

Transaction costs arise from economic exchange rather than production activities. However, the term “transaction cost” is not consistently defined in the construction industry…

1603

Abstract

Purpose

Transaction costs arise from economic exchange rather than production activities. However, the term “transaction cost” is not consistently defined in the construction industry because the concept of transaction cost is not universally accepted by all stakeholders in construction projects. As a result, empirical studies are few and conflicting because accessing data on transaction costs is problematic, and the interpretation of the data is difficult. The purpose of this paper is to analyze the transaction costs borne by the owner in a construction project from the perspective of transaction cost economics and construction project characteristics.

Design/methodology/approach

A questionnaire survey was administered to construction owners. The factors that impact transaction costs were analyzed in the context of human-related issues (the owner's and the contractor's positions in the transaction), and environment-related issues (the transaction environment, and project management efficiency). Statistical analyses were conducted to compare the transaction costs incurred in the pre- vs post-contract phases of a project relative to the private vs public sector, different project delivery systems, different procurement methods, and different types of contracts.

Findings

The owners surveyed believe that transaction costs may be reduced if the owner and the contractor follow some basic guidelines (e.g. experience in similar projects, prompt payment, good relationship with project participants, no irregularities in bidding, and only few material substitutions and claims), if the project is well-run (e.g. technical competency, strong leadership, prompt decision-making, effective communication, and fair/speedy conflict management), and if the transaction environment is favorable (e.g. fair risk allocation, early contractor involvement, and complete design documents). The findings of the survey also indicate that post-contract transaction costs are much higher than pre-contract transaction costs expressed as percent of project value and that transaction costs are affected by the owner (public vs private), the procurement method, the project delivery system, and the type of contract.

Originality/value

The primary contribution that this research makes to the body of knowledge is a better understanding of transaction costs incurred by construction owners in the USA. The highest transaction costs are to be expected in the post-contract phase of public projects awarded on a unit price basis, but can be reduced, hence reducing overall project cost.

Details

Engineering, Construction and Architectural Management, vol. 21 no. 4
Type: Research Article
ISSN: 0969-9988

Keywords

Book part
Publication date: 29 November 2019

Peter Palm, Ola Jingryd and Lana Kordić

Transaction costs on the housing market are, arguably, inevitable. They are also diverse. While fees and taxes are easily identified and observed, transaction costs can arise from…

Abstract

Transaction costs on the housing market are, arguably, inevitable. They are also diverse. While fees and taxes are easily identified and observed, transaction costs can arise from the functioning of the market and its regulatory framework. For instance, there are costs related to obtaining information. Lack of information creates uncertainty, which increases risk, which increases transaction costs. Thus, market transparency affects the level of transaction costs. For the regulatory framework to be effective, rules must be effectively enforceable; accordingly, the judicial and administrative institutions must function properly. Thus, there is a clear, albeit complex, relation between transaction costs on the one hand and market transparency, government efficiency, regulatory quality, and property rights protection on the other.

The aim of this chapter is to discuss transaction processes and transaction costs in real estate conveyances for both the seller and the buyer with respect to taxes, fees, and obtaining information. To that end, we compare the transaction processes and costs involved in Croatia and Sweden, respectively.

Neither Croatia nor Sweden displays prohibitive costs, yet Croatian transaction costs are significantly higher than those in Sweden. This is hardly surprising given that the Croatian transaction process features at least one additional party to be remunerated compared to the Swedish process. Thus, it would seem that the Swedish regulatory regime – where the estate is charged with handling the legal aspects of the transaction – render lower transaction costs.

There is also the issue of how and to whom fees are paid. For instance, there are more bank fees in Croatia, whereas in Sweden more of the fees are paid to the state. On the other hand, Croatia is one of the few countries where no capital gains tax is levied on real estate conveyances, whereas Sweden has a capital gains tax of 22 per cent – a tax that may hamper movement from one region to another with differences in property prices. Overall, however, with the exception of the capital gains tax for the seller, it is clear that the Swedish transaction process carries lower and more predicable costs than its Croatian counterpart.

Details

Investigating Spatial Inequalities
Type: Book
ISBN: 978-1-78973-942-8

Keywords

Open Access
Article
Publication date: 7 April 2023

Justyna Dobroszek, Paulo Reis Mourão and Maciej Urbaniak

This paper aims to identify purchasing-related costs through the prism of transaction costs and costs of purchasing management activity.

Abstract

Purpose

This paper aims to identify purchasing-related costs through the prism of transaction costs and costs of purchasing management activity.

Design/methodology/approach

The authors conducted a survey among 150 medium and large manufacturing companies in the chemical, automotive and electromechanical industries operating in Central and Eastern European countries. The collected data were analyzed using confirmatory factor analysis.

Findings

The studied companies carry out an integrated purchasing-related cost system. The authors found a statistical significance of the covariances between the pretransaction, transaction and post-transaction costs. In addition, costs that are of particular importance in long-term purchasing transactions were identified. Moreover, the authors identified the costs of quality and support actions as the most significant.

Practical implications

This research details the discussion of costs with consideration for the insights of managers of medium-sized and large companies.

Originality/value

The paper contributes to the knowledge of purchasing-related costs through the lens of the total cost of ownership that influences the purchasing management and the decisions within the buyer-supplier relationship.

Details

Central European Management Journal, vol. 31 no. 1
Type: Research Article
ISSN: 2658-2430

Keywords

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