Transaction cost analysis of public infrastructure delivery

2015 ◽  
Vol 8 (3) ◽  
pp. 441-456 ◽  
Author(s):  
Steven De Schepper ◽  
Elvira Haezendonck ◽  
Michaël Dooms
Keyword(s):  
Transaction Costs ◽  
Transaction Cost ◽  
Public Procurement ◽  
Geographical Area ◽  
Empirical Support ◽  
Public Infrastructure ◽  
Content Type ◽  
Systematic Assessment ◽  
Specific Investments ◽  
Mature Market

Purpose – The purpose of this paper is to offer a systematic assessment of the magnitude of transaction costs of public infrastructure delivery, based on the three attributes of transaction costs, being the asset specificity, uncertainty and frequency of a transaction. Design/methodology/approach – Non-parametric tests were used to test the transaction cost differences between different procurement types. Findings – The authors find empirical support, based on a sample of 172 public infrastructure projects in Belgium, that construction firms make higher relation specific investments to their transaction partners under a public-private partnership (PPP) than a under a traditional public procurement (TPP). In addition, the authors found that PPP transactions are burdened by a greater uncertainty and a less mature market than TPP transactions. Research limitations/implications – Given the complexity of this research, the scope is limited to: a strict distinction between two procurement types, one geographical area, a limited time scope and a focus on the private sector. Hence, the authors suggest that further research broadens the scope of either one of these aspects in order to get a better understanding of the total transaction cost burden of the public infrastructure market. Practical implications – This study offers policy makers form a better understanding of the transaction cost implications when evaluating different procurement types. Originality/value – This paper serves as one of the first systematic comparative analyses of the magnitude and determinants of transaction costs for the delivery of public infrastructure.

Transactional dynamics in European R & D networks: an assessment of Eureka

2015 ◽  
Vol 18 (3) ◽  
pp. 330-354
Author(s):  
Bruno Brandão Fischer ◽  
José Molero
Keyword(s):  
Transaction Costs ◽  
Transaction Cost Economics ◽  
Empirical Support ◽  
Research Area ◽  
Dynamic Interactions ◽  
Firm Level ◽  
Content Type ◽  
Dynamic Framework ◽  
Level Data ◽  
Ex Ante

Purpose – The purpose of this paper is to verify the impacts of the transaction costs rationale on economic agents’ innovative results when they engage in European R & D networks, supplying both firms and policymakers with empirical support for improved decision making toward economic competitiveness and construction of the European research area. Furthermore, unlike many transaction cost economics assessments, the authors evaluate the existence of transaction costs following a dynamic framework of analysis (instead of using solely ex ante governance choice as a driver of inter-firm “friction” management), offering a novel perspective on these phenomena. Design/methodology/approach – Data consist of firm-level information from Eureka’s Final Reports (1995-2006) for Spanish, Italian, French, British and German firms. Empirical assessments were performed through a two-step approach of direct and indirect effects of network management and potential sources of disturbances. Ordinal regressions were applied in order to identify transaction costs’ relevance as drivers of firms’ technological and commercial outcomes, as well as on managerial quality of alliances. Statistical controls include microeconomic and project-specific variables. Findings – Results highlight the role played by transactional aspects as drivers of companies’ outcomes and managerial complexity. Furthermore, the authors find robust evidence that formal ex ante governance structures are incapable of satisfactorily addressing dynamic disturbances that take place within R & D networks. Whereas such findings are directly related to existing transaction costs, the authors find no support for the usual variables attributed to increased complexity in international inter-firm relationships. Research limitations/implications – Self-selection issues are inherently related to the research instrument (i.e. Eureka’s Reports), while further firm-level data could not be obtained since confidentiality issues protected companies’ names and sectors. Also, network-level data are not available, allowing the evaluation of individual perceptions only. Originality/value – While literature addresses the issue of transaction costs in R & D networks via theoretical assumptions and rough proxies, this assessment offers an in-depth evaluation of a set of valuable indicators with direct implications for researchers, managers and policymakers. Main contributions concern the identification of dynamic interactions (and their respective disturbances) as a key feature of the overall performance of R & D networks, stressing the non-linearity of economic processes in these hybrid relationships, an issue that has been poorly tackled by previous empirical investigations.

scholarly journals Socio-economic sourcing: benefits of small business set-asides in public procurement

2018 ◽  
Vol 18 (3) ◽  
pp. 217-239 ◽  
Author(s):  
Timothy Hawkins ◽  
Michael Gravier ◽  
Wesley S. Randall
Keyword(s):  
Small Business ◽  
Transaction Costs ◽  
Government Spending ◽  
Small Businesses ◽  
Perceived Risk ◽  
Design Methodology ◽  
Public Procurement ◽  
Content Type ◽  
Source Selection ◽  
Selection Processes

Purpose Small businesses are critical to economic health and encouraged in government spending by set-asides – annual small business sourcing goals that often are not attained. Little research has explored the negative and risky stigmas associated with small business sourcing. Design/methodology/approach This research explores reduced transaction costs of small business sourcing to government buyers. A survey of 350 government source selections reveals lower transaction costs derived from lower perceived risk of receiving a bid protest and via more efficient source selection processes. Findings Contrary to common bias, the performance level of small businesses is no less than that of large business. Thus, small businesses engender lower transaction costs for correcting supplier’s performance. On the basis of these findings, managerial and theoretical implications are discussed.

scholarly journals Infrastructure procurement capacity gaps in Nigeria public sector institutions

2019 ◽  
Vol 26 (9) ◽  
pp. 1962-1985 ◽  
Author(s):  
Patrick Manu ◽  
Abdul-Majeed Mahamadu ◽  
Colin Booth ◽  
Paul Olaniyi Olomolaiye ◽  
Akinwale Coker ◽  
...  
Keyword(s):  
Local Government ◽  
Public Procurement ◽  
Governance Structure ◽  
Sub Saharan Africa ◽  
Government Agencies ◽  
Public Infrastructure ◽  
Content Type ◽  
Organisational Capacity ◽  
State And Local Government ◽  
State And Local

Purpose The achievement of sustainable development goals is linked to the procurement of public infrastructure in a manner that meets key procurement objectives, such as sustainability, value-for-money, transparency and accountability. At the heart of achieving these procurement objectives and others is the capacity of public procurement institutions. Whereas previous reports have hinted that there are deficiencies in procurement capacity in Nigeria, insights regarding critical aspects of organisational capacity deficiencies among different tiers of government agencies is limited. The purpose of this paper is to investigate the critical gaps in the procurement capacity of state and local government agencies involved in the procurement of public infrastructure in Nigeria. Design/methodology/approach The study employed a survey of public infrastructure procurement personnel which yielded 288 responses. Findings Among 23 operationalised items that are related to organisational procurement capacity, none is perceived to be adequate by the procurement personnel. Additionally, among 14 procurement objectives only 1 is perceived as being attained to at least a high extent. Originality/value The findings underscore the acuteness of organisational procurement capacity weaknesses among public procurement institutions within Nigeria’s governance structure. It is, thus, imperative for policy makers within state and local government to formulate, resource and implement procurement capacity building initiatives/programmes to address these deficiencies. Additionally, the organisational procurement capacity items operationalised in this study could serve as a useful blueprint for studying capacity deficiencies among public infrastructure procurement agencies in other developing countries, especially within sub-Saharan Africa where several countries have been implementing public procurement reforms.

A transaction cost approach for public procurement

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Aksel I. Rokkan ◽  
Sven A. Haugland
Keyword(s):  
Transaction Cost ◽  
Transaction Cost Economics ◽  
Public Procurement ◽  
Theoretical Perspective ◽  
Public Agencies ◽  
Private Companies ◽  
Supplier Relationships ◽  
Content Type ◽  
The Public ◽  
Market Governance

Purpose This paper aims to develop a theoretical framework based on transaction cost economics that identifies key factors shaping public agencies’ governance of supplier relationships and related performance implications. Design/methodology/approach The paper presents an extended transaction cost framework for research on public procurement (PP) with a corresponding set of propositions. Transaction cost theory and specific features of and challenges to the PP function identified in extant literature constitute the main elements of the framework. Findings This conceptual paper makes three sets of proposals. First, public agencies tend to rely on market governance of supplier relationships and when PP deploys non-market governance, such governance tends to be of a unilateral (vs bilateral) kind. Second, increases in purchasing competence and autonomy of PP and particularly if implemented in tandem, will reduce PP’s overreliance on market governance and increase PP’s use of non-market governance. Third, PP should perform better for less complex transactions – and when contracting complexity relates to safeguarding of specific assets rather than when complexity relates to environmental and behavioral uncertainty. Increases in competence and autonomy should increase PP’s performance, particularly for complex transactions. Practical implications Public agencies may be in a better position to align governance solutions with transaction complexities by developing their procurement competence, decentralizing procurement decisions and increasing the flexibility of national and international procurement regulations. Private companies selling to public agencies need to be aware of and able to adapt to PP practices such as extensive use of market governance and unilateral governance as the primary form of non-market governance. Social implications The paper discusses how public agencies can improve procurement performance through better alignment of governance of supplier relationships with transaction attributes and thereby increase the quality of public services. Originality/value The paper relies on a well-established theoretical perspective, enabling identification (and, potentially, correction) of governance misalignment in the public sector.

SMEs' market orientation toward public sector customers in public procurement

2020 ◽  
Vol 34 (1) ◽  
pp. 1-16
Author(s):  
Jani Saastamoinen ◽  
Helen Reijonen ◽  
Timo Tammi
Keyword(s):  
Public Sector ◽  
Private Sector ◽  
Market Orientation ◽  
Design Methodology ◽  
Public Procurement ◽  
Empirical Support ◽  
Supply Contracts ◽  
Content Type ◽  
Supplier Performance ◽  
Finnish Firms

PurposeThis paper investigates how the market orientation of SMEs toward public sector customers enables firms to participate and succeed in public procurement.Design/methodology/approachThe authors used a survey-based methodology. First, the authors reconfigured an empirical construct of market orientation for private sector markets to measure the market orientation toward public sector customers. Then they conducted a survey of Finnish firms to test the construct and how it predicted firm performance in public procurement.FindingsThe authors find empirical support for firms to adopt a market orientation toward public sector customers. Their results suggest that customer and competitor orientations are positive predictors of participating and winning supply contracts in public sector tenders.Research limitations/implicationsSelf-reported survey data from a single country may limit the generalizability of results.Originality/valueThis paper is the first to report a market orientation toward public sector customers and describe how it is related to supplier performance in public procurement.

The challenge of implementing public-private partnerships: a transaction costs perspective on waste to energy projects in Indonesia

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Azelia Machsari Haqq ◽  
Yohanna M.L. Gultom
Keyword(s):  
Transaction Costs ◽  
Transaction Cost ◽  
Significant Role ◽  
Waste To Energy ◽  
Primary Data ◽  
Content Type ◽  
Depth Analysis ◽  
Insight Into ◽  
Failure Factors

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.

How cultural distance affects the formation of international strategic alliance – an explanation of the transaction costs theory

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ming Ning Xiong ◽  
Tao Wang ◽  
Peng Zhao
Keyword(s):  
Transaction Costs ◽  
Transaction Cost ◽  
Strategic Alliances ◽  
Strategic Alliance ◽  
Cultural Distance ◽  
Transaction Cost Theory ◽  
Alliance Formation ◽  
Content Type ◽  
Underlying Mechanisms ◽  
The Impact

Purpose Based on the transaction cost theory, this paper aims to investigate the impact of cultural distance on international strategic alliance formation and its underlying mechanisms. Design/methodology/approach This paper uses the investment of foreign firms in the Chinese Venture Capital market as an empirical background, Obtaining VC data from Zero2IPO Private Equity, CVsource Investment Database (2001–2015). This paper chooses the Logit regression method, according to Lind’s three-step method to test the inverted U-shaped relationship. Findings The empirical analysis of foreign venture capital firms invested in China revealed that there is an inverted U-shaped relationship between cultural distance and the possibility of international strategic alliances. This relationship is the result of two opposing mechanisms, which are the need and the feasibility of international strategic alliances. In addition, this study further examined the moderating effects of social embeddedness and social reputation, revealing the boundary effects on the complex relationship between cultural distance and possible international strategic alliance formation. Originality/value This study focuses on cultural difference, which is a key factor leading to a firm’s transaction costs. Based on the transaction cost theory, this paper investigates the impact of cultural distance on international strategic alliance formation and its underlying mechanisms.

Procurement contract management in the local government authorities (LGAs) in Tanzania

2016 ◽  
Vol 29 (6) ◽  
pp. 545-564 ◽  
Author(s):  
Geraldine Arbogast Rasheli
Keyword(s):  
Local Government ◽  
Transaction Costs ◽  
Local Governments ◽  
Institutional Economics ◽  
Public Procurement ◽  
New Institutional Economics ◽  
Contract Management ◽  
Content Type ◽  
Procurement Contract ◽  
Very High

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.

The tragedy of the private: transaction cost considerations

2014 ◽  
Vol 41 (6) ◽  
pp. 482-492
Author(s):  
Tamara Peneva Todorova
Keyword(s):  
Transaction Costs ◽  
Transaction Cost ◽  
Market Failure ◽  
Private Property ◽  
Market Uncertainty ◽  
Economic Activities ◽  
Content Type ◽  
Public Property ◽  
High Transaction Cost ◽  
High Degree

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.

scholarly journals Categorizing transaction costs outcomes under uncertainty: a blockchain perspective for government organizations

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
David M. Herold ◽  
Sara Saberi ◽  
Mahtab Kouhizadeh ◽  
Simon Wilde
Keyword(s):  
Transaction Costs ◽  
Transaction Cost ◽  
Theoretical Frameworks ◽  
Content Type ◽  
Theoretical Concepts ◽  
Government Organizations ◽  
Blockchain Technology ◽  
Conceptual Clarity ◽  
Organizational Uncertainty ◽  
The Right

Purpose In response, the purpose of this paper is to provide theoretical frameworks about the organizational uncertainty behind what and when to adopt blockchain technology and their implications on transaction costs. The immature nature and the absence of standards in blockchain technology lead to uncertainty in government organizations concerning the adoption (“what to adopt”) and the identification of the right time (“when to start”). Design/methodology/approach Using transaction cost theory and path dependency theory, this paper proposes two frameworks: to assess transaction cost risks and opportunities costs; and to depict four different types of transaction costs outcomes regarding blockchain adoption. Findings This paper identifies various theoretical concepts that influence blockchain adoption and combine the two critical constructs of “bounded rationality” and the “lock-in effect” to categorize the multiple transaction costs outcomes for blockchain adoption. Research limitations/implications Although existing research in blockchain highlights mainly the potential benefits of blockchain applications, only a little attention has been given to frameworks that categorize potential transaction costs outcomes under uncertainty, in particular from organizational theorists. Originality/value Both frameworks advance the understanding of the decision-making behind blockchain adoption and synthesize the current literature to offer conceptual clarity regarding the varied implications and outcomes linked to the uncertainty regarding transactions costs stemming from blockchain technology.

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