Risk Preferences and Asset Ownership: Integrating Prospect Theory and Transaction Cost Economics

2015 ◽  
Vol 38 (2) ◽  
pp. 125-143 ◽  
Author(s):  
Aleksey Martynov ◽  
Donald J. Schepker
Keyword(s):  
Prospect Theory ◽  
Transaction Cost ◽  
Transaction Cost Economics ◽  
Risk Preferences ◽  
Asset Ownership

Influence of cooperative period of municipal PPPs on transaction cost – a case study

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Fangfang Liu ◽  
Yousong Wang ◽  
Hongyang Li ◽  
Xiaowei Zhou
Keyword(s):  
Prospect Theory ◽  
Transaction Cost ◽  
Real Option ◽  
Transaction Cost Economics ◽  
Content Type ◽  
Investment Projects ◽  
Real Option Theory ◽  
Option Theory ◽  
First Time ◽  
The Relationship

PurposeThe purpose of the study is to numerically investigate the relationship between the increase in transaction cost and prolongation of cooperative period acting as a nonmonetary incentive for municipal PPP projects.Design/methodology/approachA model that combines real option theory and the concept of prospect theory is proposed in the study. Three municipal road PPP projects published by China Public Private Partnerships Center are selected as cases. The data of these cases are analyzed based on the model established.FindingsThe prolongation of the cooperative period affects the increase in transaction cost, which gradually decreases when the prolonged cooperative period increases. Furthermore, the large-investment PPP projects own more transaction cost compared with less-investment projects. The decrease in transaction cost in the former is less than that in the latter. The increase in transaction cost is evidently alleviated in a project with less investment when the cooperative period is prolonged further.Originality/valueThe study systematically analyzes the relationship among transaction cost economics, real option theory and prospect theory and proposes a theoretical flowchart of the effect of nonmonetary incentive on the transaction cost. A model to quantify the effect of nonmonetary incentive (i.e. prolongation of cooperative period) on the transaction cost is proposed for the first time. The results of the study verify that the nonmonetary incentive affects transaction cost.

scholarly journals The Boundaries of the Firm Revisited

1998 ◽  
Vol 12 (4) ◽  
pp. 73-94 ◽  
Author(s):  
Bengt Holmström ◽  
John Roberts
Keyword(s):  
Property Rights ◽  
Transaction Cost ◽  
Transaction Cost Economics ◽  
Firm Boundaries ◽  
Investment Incentives ◽  
Asset Ownership ◽  
Boundaries Of The Firm ◽  
Ex Post ◽  
Satisfactory Account ◽  
Rights Theories

Both transaction cost-economics and property-rights theories offer explanations of the boundaries of the firm based on ideas of ex post bargaining and holdup. These theories are quite distinct in their empirical predictions, but neither offers a satisfactory account of a large variety of observed practices. The authors discuss a number of such examples, where the boundaries of the firm seem to be determined by factors other than the need to protect investments, and where other mechanisms than the allocation of asset ownership are used to provide investment incentives. These examples indicate the need to enrich their theory of firm boundaries.

scholarly journals Integrating variable risk preferences, trust, and transaction cost economics – 25 years on: reflections in memory of Oliver Williamson

2021 ◽  
pp. 1-16
Author(s):  
John F. McMackin ◽  
Todd H. Chiles ◽  
Long W. Lam
Keyword(s):  
Social Sciences ◽  
Transaction Cost ◽  
Transaction Cost Economics ◽  
Risk Preferences ◽  
Future Research ◽  
Management Review ◽  
Trade Offs ◽  
Key Points ◽  
The Social

Abstract In this essay, we honour the memory of Oliver Williamson by reflecting on Chiles and McMackin's 1996 Academy of Management Review article ‘Integrating variable risk preferences, trust, and transaction cost economics’. The article, which built on Williamson's work in transaction cost economics (TCE), went on to attract attention not only from the authors’ home discipline of management and organisation studies, but also from other business disciplines, the professions and the social sciences. After revisiting the article's origins and core arguments, we turn to selectively (re)view TCE's development since 1996 through the lens of this article, focusing on trust, risk and subjective costs. We cover conceptual and empirical developments in each of these areas and reflect on how our review contributes to previous debates concerning trade-offs implicit in relaxing TCE's behavioural assumptions. We conclude by reflecting on key points of learning from our review and possible implications for future research.

From transaction costs to transaction value: Overcoming the frictional paradigm

2020 ◽  
pp. 51-81
Author(s):  
D. P. Frolov
Keyword(s):  
Transaction Costs ◽  
Transaction Cost ◽  
Path Dependence ◽  
Transaction Cost Economics ◽  
Cost Minimization ◽  
Low Cost ◽  
Coase Theorem ◽  
Transactional Analysis ◽  
Transaction Sector ◽  
Transaction Value

The transaction cost economics has accumulated a mass of dogmatic concepts and assertions that have acquired high stability under the influence of path dependence. These include the dogma about transaction costs as frictions, the dogma about the unproductiveness of transactions as a generator of losses, “Stigler—Coase” theorem and the logic of transaction cost minimization, and also the dogma about the priority of institutions providing low-cost transactions. The listed dogmas underlie the prevailing tradition of transactional analysis the frictional paradigm — which, in turn, is the foundation of neo-institutional theory. Therefore, the community of new institutionalists implicitly blocks attempts of a serious revision of this dogmatics. The purpose of the article is to substantiate a post-institutional (alternative to the dominant neo-institutional discourse) value-oriented perspective for the development of transactional studies based on rethinking and combining forgotten theoretical alternatives. Those are Commons’s theory of transactions, Wallis—North’s theory of transaction sector, theory of transaction benefits (T. Sandler, N. Komesar, T. Eggertsson) and Zajac—Olsen’s theory of transaction value. The article provides arguments and examples in favor of broader explanatory possibilities of value-oriented transactional analysis.

Governance of supplier-customer relations: An empirical review

2007 ◽  
Vol 158 (12) ◽  
pp. 406-416
Author(s):  
Jon Bingen Sande
Keyword(s):  
Transaction Cost ◽  
Empirical Research ◽  
Customer Relations ◽  
Transaction Cost Economics ◽  
Exchange Theory ◽  
Forest Industry ◽  
Relational Contracts ◽  
Relational Exchange ◽  
Exchange Relationships ◽  
Relational Exchange Theory

The forest industry is riddled with exchange relationships. The parties to exchanges may have diverging goals and interests, but still depend upon each other due to non-redeployable specific assets. Formal and relational contracts may be used to deal with the resulting cooperation problems. This paper proposes a framework based on transaction cost economics and relational exchange theory, and examines to what extent empirical research has found formal and relational contracts to deal with three different governance problems. To that end, I review the results from 32 studies in a range of settings. These studies generally support the view that exchanges characterized by high degrees of specific assets should be supported by formal and relational contracts.

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