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Despite growing engagements between firms and nonmarket stakeholders—such as local communities and nongovernmental organizations —research has yet to examine the emergence of formal contracts between them. Given that a very large number of such contracts are theoretically possible but only a small number exist, we seek to understand what factors explain the use of contracts to govern some relationships between firms and nonmarket stakeholders but not others. We draw on transaction cost economics to study transactions wherein a nonmarket stakeholder provides a firm access to a valuable resource and to understand when these transactions are governed by formal contracts. We propose that, when a firm makes site-specific investments, a stakeholder's use rights to the resource sought by the firm, the negative externalities generated by its use, and the stakeholder's capacity for collective mobilization increase holdup risk for the firm and therefore the probability of a contract. We collect novel data on the location of indigenous communities and mines in Canada to identify a plausible exhaustive set of indigenous communities "at risk" of signing a contract with a mining firm. We test our hypotheses by relying, respectively, on historically assigned property rights over lands, the mine-community colocation in a watershed and proximity on transportation routes, and archival records of community mobilization events. We find support for our propositions by examining which of the 5,342 dyads formed by 459 indigenous communities and 98 firms signed 259 contracts between 1999 and 2013. [ABSTRACT FROM AUTHOR]

An introduction is presented in which the editor discusses various topics within the issue, like interorganizational governance, vertical integration of organizations, and organizational economics.

Despite the large literature on alliance contract design, we know little about how transacting parties change and amend their underlying contracts during the execution of strategic alliances. Drawing on existing research in the alliance contracting literature, we develop the empirical question of how contract detail and prior ties influence the amount, direction, and type of change in such agreements during the collaboration. We generated a sample of 115 joint ventures (JVs) by distributing a survey to JV board members or top managers and found that the amount of contract change is negatively associated with the level of detail in the initial contract but is positively associated with the number of prior ties between alliance partners. In relation to the direction of contract change, we find that the level of detail of the initial agreements negatively correlates with the likelihood of removing or weakening existing provisions and that prior collaborative experience positively correlates with the likelihood of strengthening of existing provisions or adding of new ones. We also find that prior ties affect the type of change in that JV parents prefer to change enforcement provisions more so than the coordination provisions in the contract. Our paper generates new insights on the complementarities between relational governance and transaction cost economics perspectives on alliance contracting. [ABSTRACT FROM AUTHOR]

We study minority equity partnerships and the representation of investing firms on the boards of directors of their partners. In such alliances, an investor firm owns a minority position in the investee partner and may or may not secure a board seat. Prior alliance governance research has largely focused on the choice between equity and nonequity forms of alliances, and it has paid little attention to the particular administrative features of these organizational forms, notably their governing boards. We extend corporate governance research that has emphasized the monitoring and advisory roles of boards by examining how an investee's concerns about knowledge misappropriation can reduce the likelihood that an investor obtains board representation. We suggest that, although there exist opportunities for an investee to benefit from the investor's advice, the investor's ability to use an investee's knowledge by itself and indirectly with the help of its other partners negatively affects the likelihood of a board seat for the investor. We further argue that this negative effect is amplified when the investee has particularly valuable technologies at risk of appropriation by the investor. Our evidence from minority equity partnerships in the biopharmaceutical industry indicates why and when investors do not obtain board seats, despite the monitoring and advisory benefits that directors can bring to cooperative commercialization agreements. [ABSTRACT FROM AUTHOR]

The patent assertion entity is a relatively new organizational form that neither invents nor commercializes products, but acts as a distributor of intellectual property rights between inventors and commercializing entities. We combine measurement and governance branches of transaction cost theory to compare the efficiency of market intermediation by patent assertion entities to that of bilateral licensing agreements, patent pools, and firm integration. We consider the level of complementarity between patents and the breadth of their commercial applications to develop four general intellectual property configurations that depict distinct relationships between patent supply and patent demand. The costs and benefits of the various governance alternatives are then weighed for each configuration to identify when each alternative is likely to be most efficient. Our analysis suggests that patent assertion entities are most efficient in allocating intellectual property rights when there is substantial patent complementarity such that value is created through patent bundling, and these bundles are applicable across a broad range of product lines such that the costs of measuring infringement and its damages are substantial. We consider how the imperfections of patents as contracts between inventors and society in conjunction with rapid technological evolution contribute to the growth of patent assertion entities. This analysis provides some guidance for managers on how to appropriate value from intellectual property. [ABSTRACT FROM AUTHOR]

This paper examines conceptual issues and reviews empirical results bearing on the relationship between research approaches emphasizing organizational capabilities and those based in transaction cost economics (TCE)--or in organizational economics more generally. Following a review of conceptual fundamentals--what capability is and why organizations differ in capability--it assesses recent progress toward an integration of the capabilities and transaction cost approaches, primarily in the context of the analysis of vertical structure and related phenomena. This review suggests that progress has been substantial and that the key elements of a promising dynamic synthesis have been identified. The paper then considers issues that call for attention if further progress is to be achieved. The first of these is the role of agency, which must be seen in expansive terms (relative to standard economic rationality) if its evolutionary significance is to be fully appreciated. The second is the role of structure, or more specifically, industry architecture, which affects capability development by way of its effect on the feedback that firms receive. After drawing on the recent financial crisis for an illustration of these ideas, this paper considers the rise of interest in business models as a useful field of application, and it concludes with a discussion of the role of organizational economics (beyond TCE). We argue that, whatever the theoretical perspective at the level of the firm, analyses must reach beyond that level to grasp the important causal forces affecting capability development, firm boundaries, and structural features more generally. [ABSTRACT FROM AUTHOR]

We integrate insights from organizational capabilities, organizational economics, and industry evolution to examine industry entrants' boundary choices about value chain activities and test hypotheses in 1978-2009 data from a sample of U.S. bioethanol producers. We find support for our predictions that transaction hazards, decomposed as either enduring or transient over the stages of industry evolution, are positively associated with the choice to internalize value chain activities. Pre-entry experience in an activity increases the likelihood of its internalization and reduces the effect of enduring transaction hazards on the internalization choice. Importantly, we also distinguish between firm- and founder-level pre-entry capabilities (that is, the capabilities of firms versus those of founders). Diversifying entrants with firm-level integrative capabilities are more likely to internalize value chain activities than start-ups, and this effect persists over the industry's life cycle. The relationship between pre-entry experience with an activity and the likelihood of internalizing it is also stronger for diversifying entrants. Findings improve understanding of the relationships among capability development, boundary choice, and industry evolution. [ABSTRACT FROM AUTHOR]

Whereas capability differences are known to impact governance decisions, what drives heterogeneity in firm capabilities? We propose that capability differences may arise from governance choices related to the focal activity and study how firms accumulate capabilities in the firm-specific, industry-specific, and occupational human capital necessary to perform knowledge work. We theorize that prior outsourcing decisions influence the development of firm- and industry-specific human capital and that buyer-supplier differences in the management of skilled employees can produce systematic differences in capabilities based on occupational human capital. Additionally, we explore some contingencies in the development of these types of human capital and their impacts on outsourcing knowledge work. These propositions are tested with a unique data set on the outsourcing of legal work involved in filing patents (i.e., patent prosecution). [ABSTRACT FROM AUTHOR]

In this paper, we propose an approach to show how the capability-based perspective of the resource-based view of the firm can be integrated with the comparative-governance approach of transaction cost economics to shed light on governance issues in interfirm relationships. We argue that transacting parties create value not only through the employment of partner-specific investment and coordination activities but also through the employment of heterogeneous, firm-specific resources that each firm brings to the relationship and that, in turn, governance structures reflect a discriminating alignment with these two distinct forms of value-creating activities and resources. Our thesis is empirically tested in the context of industrial original equipment manufacturers employing branded component contracts with independent component vendors. Specifically, we investigate the conditions under which the price terms for branded components are agreed upon (more fixed) ex ante versus negotiated (more flexible) ex post. Our results offer two insights. First, the chosen governance form reflects a trade-off between safeguarding and adaptation motives even among parties engaged in cooperative relationships. Second, valuable, firm-specific resources that preexist outside of the exchange relationship are at stake in these cooperative yet contractually incomplete relationships. They, together with relationship-specific investments and activities, have a significant impact on governance design. [ABSTRACT FROM AUTHOR]

This paper integrates transaction cost economics with the resource-based view of the firm and new institutional economics to examine how firms' capabilities and institutional environments influence governance decisions. We demonstrate that the impact of firm capabilities on governance choice varies with the level of transaction costs, which is itself a function of the institutional environment. Based on panel data for 240 investor-owned utility companies in 1990-2007, we find that firms with strong institutional safeguards, prior contracting experience, and inferior firm production capabilities will buy more electricity, and make less, to meet increases in demand. We also find that institutional safeguards substitute for prior contracting experience and increase the influence of production capabilities on governance decisions. These findings suggest that firm heterogeneity is a significant factor in governance decisions and that firms' capabilities and institutional environments merit additional consideration in the study of firm governance. [ABSTRACT FROM AUTHOR]

This paper explores how the structure of decision making affects the way that firms manage their boundaries. Achieving transaction alignment requires firms to balance multiple goals. Drawing on the behavioral theory of the firm, I note that firms often assign different goals to different organizational units. As a consequence, simple problems about whether to make or buy can be affected by multiple decisions taken by multiple, locally rational units. I use a case study of the management of IT consultants in a financial services firm to explore how make-or-buy decisions are made. I find that senior managers at the firm focused on cost and organizational flexibility, whereas frontline managers concentrated on exploiting workers' existing knowledge. The narrow focus of these two groups interacted with the complex demands of transaction alignment to create three problems: separation of related decisions about internal capacity and project staffing, incomplete information when deciding on organizational capacity, and incentive misalignment in staffing consultants. These problems led the firm to become dependent on its consultants. I build on the case study to develop theoretical propositions about the characteristics of decisions and organizational structure that are most likely to lead boundary decisions to deviate from existing predictions. [ABSTRACT FROM AUTHOR]

The paper examines the significance of enforceability and adaptability in governing vertical alliances and their performance ramifications for suppliers. Literature on supplier relations suggests that suppliers are skeptical of close ties with their buyers (Helper 1991, Helper and Sako 1995). Such skepticism persists in spite of the fact that buyers are writing longer (enforceable) contracts with fewer suppliers. In this context, the paper develops a transaction cost economics (TCE)-based model that distinguishes between the verifiable and nonverifiable aspects of governance attributes (of safeguards, incentive intensity, and adaptability) in explaining supplier performance variations. The paper argues that the following factors prove valuable for suppliers: (1) the adaptive and collaborative orientation fostered by the original equipment manufacturer's (OEM's) credible commitment to the exchange and by information sharing on the part of the supplier, (2) the presence of certain nonverifiable safeguards, and (3) the incentives inherent in target pricing. These assertions have been tested using data from the home appliance industry. Results indicate that information sharing together with (1) OEM dependence and (2) target pricing does indeed enhance supplier performance. Also, results suggest that while nonverifiable safeguards can help, verifiable safeguards do not have a positive association with supplier interests. Under certain conditions then, suppliers can venture into closer relationships with buyers and benefit. [ABSTRACT FROM AUTHOR]

Since the mid 1980s, organization theorists have highlighted the emergence of the networked model of organization as a response to global competition and pressures for increased market flexibility. Cultural industries have not been immune from this development. In this paper, we examine the shift from hierarchy to network in the U.K. television industry. We argue that an important result of this disaggregation is the emergence of latent organization, groupings of individuals and teams of individuals that persist through time and are periodically drawn together for recurrent projects by network brokers who either buy in programmes for publisher-broadcasters or who draw together those artists and technicians who actually produce them. In conclusion, we note how latent organizations may become increasingly important for effective cultural industry production, and in particular how they may provide stable points of reference and recurring work projects for those many individuals now working outside of large, vertically integrated producer-broadcasters. [ABSTRACT FROM AUTHOR]

The instabilities of strategic alliances have been examined in the literature through a number of theoretical approaches. Alliance instabilities refer to major changes or dissolutions of alliances that are unplanned from the perspective of one or more partners. Although the literature identifies certain characteristics of strategic alliances that may lead to their unplanned dissolution, the extent of our understanding of this subject appears to be fragmented and incomplete. In this article we propose a comprehensive framework for adequately understanding alliance instabilities based on the notion of internal tensions. We suggest that strategic alliances are sites in which conflicting forces develop and which can be viewed as being constituted by three key pairs of competing forces--namely, cooperation versus competition, rigidity versus flexibility, and short-term versus long-term orientation. This tensions framework helps us in explaining the intrinsic vulnerability of alliances in terms of a wide range of internal contradictions and enables us to examine, in an integrated manner, the incidence, dynamics, and eventual dissipation of the inherent instabilities. We discuss the interrelationships among the different internal tensions and their impacts on different types of strategic alliances. We also examine the termination of alliances through mergers/acquisitions and dissolution. Finally, we suggest ways to empirically test the various ideas and propositions developed here and indicate directions for further research. [ABSTRACT FROM AUTHOR]

One view holds that organizations are virtual to the extent that they outsource key components of their production processes, and that electronic networks make it easier to do this. The goal of the present paper is to examine explicitly the effects that use of electronic networks for transactions with suppliers has on firms' degree of virtualization. In so doing, we also highlight factors that influence the use of networks for coordination with suppliers, and the impact such use has on coordination success. Contrary to much recent speculation, the use of electronic networks for transactions was not associated with increased outsourcing, but rather with greater dependence on internal production. Moreover, the use of interpersonal relationships for coordination, which many think of as an alternative to electronic network use, was positively associated with greater network use. Surprisingly, use of electronic networks was negatively associated with such outcomes as order quality and efficiency, and satisfaction with suppliers, while more reliance on personal linkages was associated with better outcomes and mitigated the negative consequences of using electronic networks. [ABSTRACT FROM AUTHOR]

This paper explores the economic processes through which information technology can facilitate coordination within and between firms. The paper presents and analyzes a case study of the B-2 "Stealth" bomber, an aircraft that was designed by four firms almost entirely by computer. The key information systems used in the project were (1) a common-access database to manage part designs and (2) an advanced system to perform structural analysis. These systems played a crucial role in enabling the four firms to coordinate their design and development activities precisely enough to meet the demanding engineering requirements imposed by the aircraft's unique mission. The paper analyses the case study using transaction cost, agency, and information processing theories. The analysis leads to several conclusions about the mechanisms through which the variables emphasized in these theories operated to improve coordination. First, the information systems aided coordination directly by making information processing less costly. Second, this enhanced information processing made the governance of the project more efficient. In particular, by establishing a "technical grammar" for communication, the systems helped to create social conventions around which firms could coordinate their activities, thus limiting the need for a hierarchical authority to promote coordination. This technical grammar also reduced governance costs by reducing asset-specificity, thereby reducing risks associated with contractual holdup. These interactions between communication and governance effects have not been elucidated in the IT/coordination literature. They are important in part because they help explain why the vertically disintegrated organization of the project proved viable. Finally, the systems facilitated decentralized decision-making by reducing agency (measurement) costs. This combination of effects may generalize to other settings in which information technology is used to promote ... [ABSTRACT FROM AUTHOR]

The effects of strategic order of entry on firms' performance have long been an issue in many areas of study. Past research efforts, however, have been concentrated mostly on first mover or early entrant advantages. To contribute to developing a theory of latecomer strategies, the authors investigate how late-comers compete successfully or even leapfrog early movers. They review previous studies on early mover advantages and disadvantages, and group the sources of such advantages or disadvantages into three areas: the firm, its market, and its competitors. The theoretical focus is how a firm converts the opportunities stemming from entry order into performance. The authors seek to confirm and extend relevant theories by examining how late entrants have caught up with incumbent industry leaders in the global semiconductor industry. On the basis of in-depth case analysis of three Japanese and three Korean semiconductor companies, they identify and categorize successful latecomer strategies into two types: strategies for overcoming latecomer disadvantages and strategies for utilizing latecomer advantages. Focusing, thin margin or loss bearing, and volume building form the essence of strategies for overcoming disadvantages, whereas odd timing, time compression, human-embodied technology transfer, benchmarking, technological leapfrogging, and resource leveraging form the essence of strategies for utilizing advantages. Because many companies in Asia have had to face the reality of being latecomers, the Asian perspectives are particularly useful for studying and explicating latecomer strategies. [ABSTRACT FROM AUTHOR]

We develop the notion that the choice of alliance scope materially affects the character of benefits that alliance participants receive, and thereby affects a range of issues having to do with the initiation, evolution, and termination of the alliance. Indeed, while under-emphasized by academics, determining alliance scope ranks among the most important tasks undertaken by practitioners of alliances. Restricting ourselves to alliances where mutual learning is the primary raison d'être, we first define private benefits as those that accrue to subsets of participants in an alliance, and common benefits as those that accrue collectively to all participants. We demonstrate how the choice of alliance scope affects the mix of private and common benefits, and draw on earlier work to show how this, in turn, affects alliance partners' incentives to invest in learning. As illustrations of the utility of the framework of private and common benefits, we consider two applications. A simple model illustrates the relationship between the choice of alliance scope, the realization of private and common benefits, and the stability, or lack thereof, of the alliance. A second application sheds light on alliance evolution. It examines factors affecting both (a) how a particular alliance evolves and (b) how firms manage sequences of alliances. Two broader theoretical points also emerge from this discussion of alliance scope. First, we argue that an analytical focus solely on the individual alliance may be inappropriate for studying a wide range of issues. Of the multiple sources of benefits that accrue to alliance participants, there are some whose realization depends on activities in which the firm is engaged, but that may have little to do with the alliance in question. Second, in contrast to much of the literature on alliances, our analysis is based upon the primitives of benefit streams, rather than on transaction cost reasoning. This complementary perspective is better suited... [ABSTRACT FROM AUTHOR]

This paper offers a theoretical explanation for why interfirm collaborations form yet fail, and further suggests how firms might manage them for a more positive outcome. Based on a perspective of value, we explain how a more inclusive and integrative perspective, one which combines elements from transaction costs and resource-based theory, provides more robust insight into collaboration formulation, management, and instability. In doing so, we differentiate rent-yielding firm-specific assets at the core of the resource-based view from the transaction-specific assets at the core of transaction cost theory. The paper makes a crucial distinction between the potential value attainable through collaborations and its actual realization. The crux of our argument is that firms enter into collaborative relationships because these are expected to yield superior value relative to alternate organizational forms in certain situations, offering potentially synergistic combinations of complementary resources and capabilities. Yet such relationships are frequently prone to failure because the partner firms tend not to recognize ex ante the nature and extent of transaction-specific investment that is required in the collaborative relationship to attain these synergies. In our argument, critically, the relationship between organizations is seen not simply as a governance structure of a hybrid nature but, more importantly, as a productive resource for value creation and realization. In this light, transaction-specific investment in what we term relational specificity becomes imperative. In the search for value, we explain why the transaction costs incurred in the exchange to be transacted and, similarly, why the returns realized from these resources are not independent of the relationship- and transaction-specific expenditures incurred in effectively combining them and maintaining the combination. The interdependence between the two, mediated by the quality of the relationship... [ABSTRACT FROM AUTHOR]

A conceptual challenge in exploring the role of trust in inter-organizational exchange is translating an inherently individual-level concept-trust--to the organizational-level outcome of performance. We define interpersonal and interorganizational trust as distinct constructs and draw on theories of interorganizational relations to derive a model of exchange performance. Specifically, we investigate the role of trust in interfirm exchange at two levels of analysis and assess its effects on negotiation costs, conflict, and ultimately performance. Propositions were tested with data from a sample of 107 buyer-supplier interfirm relationships in the electrical equipment manufacturing industry using a structural equation model. The results indicate that interpersonal and interorganizational trust are related but distinct constructs, and play different roles in affecting negotiation processes and exchange performance. Further, the hypotheses linking trust to performance receive some support, although the precise nature of the link is somewhat different than initially proposed. Overall, the results show that trust in interorganizational exchange relations clearly matters. [ABSTRACT FROM AUTHOR]

The article focuses on the current debate of the potential and challenge of a resource-based theory of the firm. The author notes the work by resource-based scholars Conner (1991) and Kogut and Zander (1992) and subsequent debate of their works from Nicolai Foss of the Copenhagen Business School. The debate is lauded for its tone and each scholar's attitude towards critique, which only seemed to elevate the conversation and strengthen the original ideas. The author feels the strength of this beginning bodes well for the ongoing debate on resource-based theory of the firm.