This paper provides an organizational economics foundation to guide managers in matching the comparatively more efficient organizational mode with transactional characteristics such as: (1) the degree of (human capital) asset specificity involved in the transaction, (2) the degree of uncertainty surrounding the transaction, and (3) the number of trading partners (suppliers and buyers) in the vertical supply chain. The key role of technology, and more specifically the e-business infrastructure and its effects on organizational mode choice, is highlighted. The main results from this analysis suggest that changes in information technology are changing the nature of transaction costs leading to more efficient management through an electronic integration solution thus favoring contracting and outsourcing than would have been technologically possible when Williamson's Markets and Hierarchies (Markets and Hierarchies: Analysis and Antitrust Implications. Free Press: New York, 1975) was published. It is emphasized that the transaction cost economics principles are durable but that the breathless advances in information technology, especially in the past decade, have comparatively favored lower transaction costs of markets over hierarchies. Copyright © 2006 John Wiley & Sons, Ltd.

Revisiting agency and transaction costs theory predictions on vertical financial ownership and contracting: electronic integration as an organizational form choice

This essay shows how to align governance mechanisms to achieve public purposes more effectively. First, it explains the alternative governance arrangements employed by public agencies, which boil down to four elementary mechanism designs. Two of the mechanisms (outlay budgets and fixed-price contracts) impose "before-the-fact" or ex ante control, while the other two (responsibility budgets and flexible-price contracts) rely on "after-the-fact" or ex post control. Then, it demonstrates that mismatching control mechanisms and task requirements can be very costly. Finally, it shows how decisions about alternative designs can reflect the objective of minimizing the sum of delivery and transaction costs and shows how creating and sustaining trust in control relationships is essential to achieving win-win outcomes.

Matching Responsibilities with Tactics: Administrative Controls and Modern Government

The Economics of Defense Contracting: Incentives and Performance

/pdf/managing-public-disputes-ypy0echmji.pdf

Managing Public Disputes

https://hull-repository.worktribe.com/preview/978901/Swaray_Salisu_GFJ.pdf

A firm-level analysis of the upstream-downstream dichotomy in the oil-stock nexus

What are bid-protests? What functions do they perform? This article proposes that government contracting, especially the source-selection process, gives rise to a particularly intractable set of transactional hazards: governmental opportunism, involving elected officials and public employees, and third-party opportunism, involving businesses engaged in protesting decisions made by public employees. It shows how the first of these hazards can be addressed by third-party intervention and how third-party intervention leads to third-party opportunism. It argues that existing arrangements governing the source-selection process, primarily the GAO’s bid-protest mechanism, effectively mitigate the consequences of governmental opportunism and, owing to this mechanism’s design, reduce the direct harm resulting from third-party opportunism as well. More formally put, it concludes that this mechanism works to minimize the sum of the costs of opportunistic behavior in the source selection process and of the costs of protecting against it and, therefore, that these governance arrangements are effective solutions to the idiosyncratic transactional hazards associated with government contracting.

The Bid Protest Mechanism: Effectiveness and Fairness in Defense Acquisitions?

Asset specificity plays an important role in contracting independently of bounded rationality and opportunism. A model of risk-averse rational maximizers, acting within a state preference framework in which Nature is the only source of risk, predicts that (1) asset specificity reduces the contractual incentives and the scale of commitment by parties to a contract when incentive remains; (2) risk aversion augments the importance of asset specificity; and (3) asset specificity tends to necessitate default premia and lead to larger premia where these are needed to create mutual incentives. Two classes of contractual arrangements are illustrative: those in the construction industry and those associated with debt financing.

The impact of asset specificity on single-period contracting

Government contracting is rife with miscommunication and misperception, sometimes unavoidably, and is often associated with secrecy, autarky, and opportunism. These qualities undermine trust, increase contracting costs, and reduce effective collaboration between business and government. In this article we show how mutual trust can be repaired and, once repaired, bumped up and made much more robust through cultivational governance.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1729464_code249171.pdf?abstractid=1635648&mirid=1&type=2

Dispelling Fear and Loathing in Government Contracting: A Proposal for Cultivational Governance in DOD Source Selections

Three paradoxes afflict mediation. First, if self-determination is a psychological need motivating the parties and the mediator, how can the parties and the mediator jointly satisfy their potentially conflicting needs? Second, if parties are having difficulty resolving their conflicting individual interests and incurring costs in the process, why would they invite a third party into the conflict who has his or her own interests and adds costs? Third, if it is impossible to guarantee that any collaborative decision making process can be immune to manipulation by one of the participants, including the mediator, why would parties expose themselves to the risks of mediation? Three mutually reinforcing theories (Self-Determination Theory, Transaction Resource Theory, and Collective Choice Theory) reveal these paradoxes. The analysis demonstrates how professional organizations and states can resolve the three paradoxes by crafting and enforcing mandatory standards of ethical practice for mediators.

Why Does Anyone Mediate if Mediation Risks Psychological Dissatisfaction, Extra Costs and Manipulation? Three Theories Reveal Paradoxes Resolved by Mediator Standards of Ethical Practice

What do appeals of administrative decisions tell us about the processes that give rise to them? Bid protests of Department of Defense source selections are illustrative. Rejected bidders can appeal to the Government Accountability Office. GAO sustains protests – few, but costly and growing – on grounds of procedural irregularity. Applying concepts from organizational economics, conflict management, and dispute systems design, we explore misalignments among management practices within agencies that can contribute to procedural errors and, thereby, to appeals. A conflict management audit, including interviews with participants in the process and analysis of GAO’s bid protest decisions, identifies sources of conflict in misalignments among strategy, structure, human resources, policies and procedures, and monitoring. Strategically adjusting the decisions to contract out, expanding authority and responsibility for risk management, creating professional development opportunities, revisiting policies on bundling and duration of contracts, and using performance information to incentivize the workforce can mitigate bid protests.

Steven Maser

Papers

The Bid Protest Mechanism: Effectiveness and Fairness in Defense Acquisitions?

The impact of asset specificity on single-period contracting

Dispelling Fear and Loathing in Government Contracting: A Proposal for Cultivational Governance in DOD Source Selections

Why Does Anyone Mediate if Mediation Risks Psychological Dissatisfaction, Extra Costs and Manipulation? Three Theories Reveal Paradoxes Resolved by Mediator Standards of Ethical Practice

The Karenina Principle and the Pathology of Administrative Appeals: A Chiropractic Approach to Improving DOD Acquisitions