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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…

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.

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

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Article
Publication date: 7 December 2021

Azelia Machsari Haqq and Yohanna M.L. Gultom

This study aims to explore the reasons behind the lengthy delays in completing a single public-private partnership (PPP) project in Indonesia and investigates how the…

Abstract

Purpose

This study aims to explore the reasons behind the lengthy delays in completing a single public-private partnership (PPP) project in Indonesia and investigates how the transaction costs play a significant role in hindering the project’s success.

Design/methodology/approach

To broaden insight into the transaction cost theory, the authors used a single case study approach to provide a more in-depth analysis of a context whose complexity can be fully explored. As the primary data sources, 16 face-to-face semi-structured interviews were conducted with the stakeholders directly involved in the project’s initiation, design and execution.

Findings

This case study demonstrates that transaction cost issues, both political and economic, play a significant role. This study has identified four main problems associated with transaction costs hindering project success, namely, executing agencies’ lack of knowledge and experience, lack of coordination for such a complex governance structure that links too many stakeholders and the financial and political risk that increase the uncertainty and public distrust.

Research limitations/implications

This study contributes mainly to the PPP and transaction costs economics literature, providing empirical evidence on why major PPP projects may fail to be procured. The Greater Bandung waste to energy (WTE) Project case demonstrates that transaction costs, both political and economic, have played a significant role in the lengthy delay of the PPP project.

Practical implications

As the project involves many transaction cost issues, mapping the failure factors at the project sites can significantly contribute to the practitioners/stakeholders involved in the PPP WTE projects. Therefore, this study provides a lesson to the policymakers at all levels interested in PPPs to consider the issues of transaction costs related to the PPP projects. It can be used as guidance as well as a reference for future PPP WTE projects in Indonesia.

Social implications

Mapping the failure factors also signifying the response of the public in the PPP WTE projects undertaken. As the citizens become more rule-conscious and rights-conscious, they demand the opportunity to participate in creating rules and project plans. If the project failed to consult with affected communities and undermined democratic accountability, the angry citizens will confront the government to cancel the project. Therefore, political and economic influences for public attitude play significant roles in making the PPP WTE projects successful.

Originality/value

This study provides insight into the transaction cost issues that have hindered the completion of Indonesia’s PPP WTE project over the past 15 years. Additionally, the project feasibility analysis should include an understanding of transaction costs for partnering in PPP.

Details

Journal of Financial Management of Property and Construction , vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1366-4387

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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…

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2868

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

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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…

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1603

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

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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…

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1125

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

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Article
Publication date: 1 June 2010

Noushi Rahman and Helaine J. Korn

Further understanding of structural hierarchy is critically needed to assess the usefulness of different alliance structures. This study goes beyond transaction cost

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2287

Abstract

Purpose

Further understanding of structural hierarchy is critically needed to assess the usefulness of different alliance structures. This study goes beyond transaction cost reasoning and incorporates social exchange theoretic perspective with the aim of capturing the concurrent relationships of alliance type and specific alliance experience with hierarchy of alliance structure.

Design/methodology/approach

Logistic regression analysis of data on 402 strategic alliances is used to test the two hypotheses advanced in the paper.

Findings

The social‐exchange‐based hypothesis is supported – specific alliance experience is negatively related to hierarchy of alliance structure. The transactioncost‐based hypothesis is not supported – hierarchy of alliance structure is not greater in horizontal alliances than in vertical alliances.

Research limitations/implications

Strategic alliances with different purposes, such as R&D, supply procurement, marketing, co‐production, and co‐development, may have different industry norms of structuring alliances. This study does not account for these underlying differences within strategic alliances.

Practical implications

The social exchange theory‐based variable (i.e. specific alliance experience) has a more salient influence on alliance structure than does the transaction cost‐based variable (i.e. alliance type). The findings signal the relative importance of communal harmony compared to competitive rivalry.

Originality/value

The paper shows that results suggest that high bureaucratic costs of more hierarchical structures diminish the transaction cost economizing benefits of such structures. This is especially the case when alliances are not expected to experience very high levels of relational hazards (usually in vertical alliances). It appears that partnering firms' concerns with high bureaucratic costs may at times exceed the marginal benefits of control and coordination of exceedingly hierarchical alliance structures.

Details

Management Decision, vol. 48 no. 5
Type: Research Article
ISSN: 0025-1747

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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…

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15830

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

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Article
Publication date: 17 October 2016

Ching-Tang Hsieh, Hao-Chen Huang and Wei-Long Lee

The basic concept of transaction cost theory is that firms like to conduct transactions in a channel with lower transaction costs. Therefore, the purpose of this paper is…

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1751

Abstract

Purpose

The basic concept of transaction cost theory is that firms like to conduct transactions in a channel with lower transaction costs. Therefore, the purpose of this paper is to use the transaction cost perspective to identify which conditions cause companies to choose between outbound open innovation (hierarchy governance) and inbound open innovation (market governance).

Design/methodology/approach

Accordingly, transaction cost economics was used to relate the choice and implementation of open innovation using a sample of 250 electronics and information start-ups in China. Structural equation modeling was used to conduct confirmatory factor analysis to evaluate measurement model, while logistic regression analysis was used to test the hypotheses.

Findings

As expected, the dedicated asset specificity, human asset specificity, behavioral uncertainty, transaction frequency, and small number exchange were positively associated with outbound open innovation.

Originality/value

The contribution of this paper lies in explaining the role played by transaction cost economics in the process of open innovation for start-ups through empirical analysis.

Details

Management Decision, vol. 54 no. 9
Type: Research Article
ISSN: 0025-1747

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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

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418

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

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Article
Publication date: 1 April 2015

Claudio Hoffmann Sampaio, Jefferson Dobner Sordi and Marcelo Gattermann Perin

This paper investigates the transaction decoupling phenomenon in purchase and consumption of football match tickets. The theoretical approach describes several economical…

Abstract

This paper investigates the transaction decoupling phenomenon in purchase and consumption of football match tickets. The theoretical approach describes several economical constructs behind individual decision-making behaviour, including sunk costs, mental accounting and coupling. Results indicate that people who buy bundled tickets are less likely to use their tickets than those who purchase individual ones. Furthermore, the phenomenon proved to be a valid theory in an actual Brazilian football ticket purchase and consumption scenario, confirming that rational elements can also be part of sports consumption. Thus, it can be stated that the type of purchase (bundle or single tickets) influences consumer decision-making.

Details

International Journal of Sports Marketing and Sponsorship, vol. 16 no. 3
Type: Research Article
ISSN: 1464-6668

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