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.

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.

scholarly journals Market Efficiency under the Arrangement of Transaction Rules of the RCCL Market from the Supply-Side Perspective

2020 ◽  
Vol 12 (18) ◽  
pp. 7660 ◽  
Author(s):  
Meie Deng ◽  
Anlu Zhang
Keyword(s):  
Transaction Costs ◽  
Market Efficiency ◽  
Transaction Cost ◽  
Three Dimensions ◽  
Price Formation ◽  
Market Uncertainty ◽  
Important Means ◽  
The Government ◽  
Collective Construction ◽  
The Impact

This paper analyzes market efficiency under the formal transaction rules of the rural collective construction land (RCCL) market in Nanhai District. These transaction rules are not perfect, market uncertainty is strong, and transaction costs remain high. Transaction rules are an important means by which the government can intervene in the market, protect farmers’ land-use and income rights, and make the market more open, equitable, and just. Using a field survey (260 questionnaires) in Nanhai District, Guangdong Province, China, we estimated the impact of the openness, equity, and justice of transaction rules on the transaction costs of the RCCL market. Tobit models were constructed, and the results showed the following: (1) The overall level of market efficiency of the RCCL in Nanhai District is low. In different regions, the highest market efficiency is in Guicheng Street and the lowest is in Xiqiao Town. However, after excluding the influence of environmental and random factors, the overall level of market efficiency decreased, while the market efficiency of Lishui and Xiqiao Town increased. (2) The influencing factors of RCCL market efficiency under the arrangement of transaction rules are mainly related to the disclosure of information in the openness dimension, income distribution and supervision in the fairness dimension, and land-price formation in the fairness dimension. Therefore, we suggest that the lower the transaction cost of an RCCL market, the more active the market will be. It is very important to improve the transaction rules of the RCCL market, reduce the transaction cost, and improve the market efficiency. The transaction rules of the RCCL market should be further improved in the three dimensions of openness, equity, and justice. Our work provides insight into the improvement of market efficiency, which contributes to the development of the RCCL markets in other areas of China and worldwide.

Organizational politics and complexity: Coase vs. Arrow, March, and Simon

2019 ◽  
Vol 29 (1) ◽  
pp. 95-104
Author(s):  
Luigi Marengo
Keyword(s):  
Transaction Costs ◽  
Transaction Cost ◽  
Organizational Politics ◽  
Organizational Conflict ◽  
Economic Activities ◽  
Cost Approach

Abstract This article argues that the transaction cost approach to the problem of organizing economic activities is undermined by a neglect of the consequences of the complexity of the interconnections among such activities and, in particular, of the complexity generated by conflict and divergent interests of the agents involved. With the increase of conflict, organizational equilibria cease to exist. Thus hierarchy is, in principle, not necessarily an efficiency increasing remedy to the existence of transaction costs but can be explained also as a way to provide temporary equilibria in the everlasting organizational conflict.

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.

A transaction cost explanation of the card-or-cash decision among Vietnamese debit card holders

2020 ◽  
Vol 38 (7) ◽  
pp. 1635-1664
Author(s):  
Dung Phuong Hoang ◽  
Thong Huy Vu
Keyword(s):  
Transaction Costs ◽  
Transaction Cost ◽  
Transaction Cost Economics ◽  
Environmental Uncertainty ◽  
Content Type ◽  
Debit Card ◽  
Willingness To Use ◽  
The Relationship ◽  
Debit Cards ◽  
Adaptation Costs

PurposeThis research provides a new perspective in explaining cardholders' willingness to use debit cards instead of cash by applying the transaction costs economic theory. This study also expands the adaptation of transaction cost economics theory in explaining consumer behaviour by investigating the moderating effects of income and education level on the relationship between perceived transaction costs and willingness to use debit cards.Design/methodology/approachThe conceptual framework was developed primarily from the transaction cost economics theory. An in-depth interview method was employed to further support hypothesis development and the development of measurement scales. A structural equation model linking asset specificity, behavioural uncertainty, environmental uncertainty, frequency of payment, perceived monitoring costs, perceived adaptation costs and willingness to use debit cards was tested using data from a sample of 384 Vietnamese debit card holders.FindingsThis study's results support the transaction cost economics theory that asset specificity, uncertainty and frequency of payment all positively contribute to the perceived transaction costs associated with debit card usage. However, only environmental uncertainty and perceived adaptation costs have significant negative impact on willingness to use debit cards, with the relationship between environmental uncertainty and willingness to use debit cards being totally mediated by perceived adaptation costs. Moreover, the relationship between perceived adaptation costs and willingness to use debit cards becomes less negative among richer and better-educated cardholders.Practical implicationsThe research provides insights into the hidden obstacles for developing cashless economies, thereby supporting policy makers in designing more effective and comprehensive strategies to make debit cards more widely used as a true substitute for cash.Originality/valueThis study provides a new lens in explaining customer willingness to use debit cards, while expanding the transaction costs economics theory by incorporating demographic factors as moderators in the relationship between transaction costs and the card-or-cash choice.

Transaction costs incurred by construction owners

2014 ◽  
Vol 21 (4) ◽  
pp. 444-458 ◽  
Author(s):  
Huimin Li ◽  
David Arditi ◽  
Zhuofu Wang
Keyword(s):  
Transaction Costs ◽  
Transaction Cost ◽  
Transaction Cost Economics ◽  
Empirical Studies ◽  
Construction Project ◽  
The Body ◽  
Unit Price ◽  
Project Delivery ◽  
Risk Allocation ◽  
Content Type

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.

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.

scholarly journals Explaining the Informal Sector in Indonesia from the Transaction Costs Perspective

2014 ◽  
Vol 16 (1) ◽  
pp. 23 ◽  
Author(s):  
Yohanna M. L. Gultom
Keyword(s):  
Transaction Costs ◽  
Transaction Cost ◽  
Informal Sector ◽  
Government Regulation ◽  
Large Scale ◽  
Manufacturing Sector ◽  
Small Scale ◽  
Open Market ◽  
Bottom Line ◽  
High Transaction Cost

The informal sector in Indonesia is massive, and has become a challenge to the growth of the open market economy. Explanations of the cause of informality have shifted over time from structural dualism to excessive government regulation. This paper argues that merely focusing on the high cost regulation may not reveal the bottom line of informality. Assessment and elaboration of infomality need the help of the transaction cost approach that suggests that informality in the economy exists due to the high-transaction-cost institutional framework. To support the argument, this paper provides a preliminary study on the transaction costs borne by firms in the industrial manufacturing sector based on two industrial surveys conducted by BPS-Statistics Indonesia, which are the 2009 survey on medium and large-scale enterprises (MLEs) and the 2010 survey on micro and small-scale enterprises (MSEs). This paper shows that micro and small-scale enterprises with no legality bore the least transaction costs compared to those operating legally, both micro and small-scale, as well as medium and large-scale enterprises. Consequently, regulatory reforms aimed at reducing transaction costs, not merely aimed at reducing official costs and simplifying procedures, are the keys to achieving economic growth while ensuring full participation of the private sector.    

Environmental turmoil and firms’ core structure dynamism: the moderating role of strategic alliances

2019 ◽  
Vol 34 (7) ◽  
pp. 1619-1638 ◽  
Author(s):  
Rui Xue ◽  
Gongming Qian ◽  
Zhengming Qian ◽  
Lee Li
Keyword(s):  
Strategic Alliances ◽  
Market Failure ◽  
Strategic Alliance ◽  
Structural Changes ◽  
Core Structure ◽  
Market Uncertainty ◽  
Content Type ◽  
Individual Level ◽  
Performance Improvements ◽  
Environmental Hostility

Purpose Much of the extant evidence in the marketing literature posits that firms use strategic alliances to share resources, costs and risks as paths to performance improvements. Drawing from the organizational ecology theory, this study aims to propose a different rationale, namely, that strategic alliances protect a firm’s core structure – its stated goals, authority structure, core technologies and marketing strategies – by mitigating the need for hazardous changes in hostile environments. Design/methodology/approach This study collected quantitative data using market survey and analyzed the data with the regression method. Findings Using Chinese firms in three technology industries as the research setting, this research finds a positive and significant relationship between environmental hostility and core structure dynamism. Although strategic alliances themselves have no direct bearing on core structure dynamism, they are found to moderate this relationship negatively, that is, strategic alliances attenuate the relationship between environmental hostility and structural changes. Research limitations/implications This paper argues that strategic alliances have significant moderating effects on firm performance, that is, firms use strategic alliances to outsource competence to partners and, thus, avoid internal turmoil. However, the moderating effect alone cannot explain the complexity of strategic alliances. There could exist other effects that remain unknown. In addition, individual-level factors could have significant impacts on strategic alliance management. Future studies should look into these issues to advance the authors’ knowledge on strategic alliances. Practical implications The findings of this study show that managers should outsource competence to partners when they experience turmoil in markets. Adapting to market turmoil internally could lead to market failure. Originality/value This study provides a new rationale for strategic alliances, that is, firms use strategic alliances to reduce market uncertainty. This rationale has not been reported in the existing literature.

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