Showing papers on "Opportunism published in 1997"

Effective interim collaboration: how firms minimize transaction costs and maximise transaction value

Abstract: This study of automotive transaction relationships in the U.S.A. and Japan offers abta which indicate that transaction costs do not necessarily increase with an increase in reiation-specijk investments. We empirically examine the conditions under which transactors can simultaneously achieve the twin benejits of high asset specificity and low transaction costs. This is possible because the dtfferent safeguards which can be employed to control opportunism have different set-up costs and result in different transaction costs over dl~erent time horizons. We examine in detail the ~ractices of Javanese firms which result in effective inteq%n collaboration. @ .. 1997 by John- Wiley & Sons: Ltd. "

Cost, value and foreign market entry mode: the transaction and the firm

Abstract: This paper compares and contrasts the mode of foreign market entry decision from the transaction cost/internalization and organizational capability perspectives. Each of these perspectives operates at a different level of analysis, respectively the transaction and the firm, and consequently differs in the primary arena of attention, namely transaction characteristics and the capabilities of firms. In making the comparison, a key distinction is made between the cost and the value aspects in the management of know-how, based on which issues pertaining to the transfer of knowledge within and across firm boundaries and the exploitation and enhancement of competitive advantage are closely examined. The main purpose of this paper is to demonstrate the implications of a shift in frame from cost to value in the analysis of decisions related to firm boundaries. Entry into foreign markets is used primarily as a vehicle for the accomplishment of this purpose. The paper shows how the value-based framework of the organizational capability perspective radically and fundamentally shifts the approach towards the governance of firm boundaries and argues that, even though TC/internalization theory raises some valid concerns, the organizational capability framework may be more in tune with today’s business context. Some of the assumptions of the TC/internalization perspective, both direct— ‐opportunism, exploitation of existing advantage—and indirect—preservation of the value of know-how across locational contexts, asymmetry between bounded rationality for transaction and production purposes—are critically examined and questioned. Implications of a shift from a cost to a value-based framework are discussed and the need for a shift in research focus is emphasized.

Making Markets: Opportunism and Restraint on Wall Street

Abstract: Introduction - market makers on Wall Street homo economicus unbound - bond traders on Wall Street structured anarchy - formal and informal organization in the futures market taming the market - conflict resolution among market makers responding to external threats homo economicus restrained - identity and control at the New York stock exchange coping with the threat of extinction opportunism and innovation an interpretation of the Milken drama cycles of opportunism - profits, prudence and the public interest.

Contracts, opportunism and trust: self-interest and social orientation

Abstract: This paper analyses the role of trust in facilitating efficient exchange relations when agents are vulnerable to opportunistic behaviour. Two distinct mechanisms supporting trust are distinguished: self-interested trust, SIT, which is forwardlooking, and socially-oriented trust, SOT, which has its roots in the past. The former is the only source of trust recognised in the mainstream economics literature, while the latter draws heavily from sociology. We develop the implications of isolated and of repeated exchange for the existence of SIT or SIT, and for the role of formal contracts in exchange relations. The paper concludes with a discussion of the feasibility of empirical testing to distinguish SIT from SOT.

Entrepreneurial Entry into Foreign Markets: A Transaction Cost Perspective

Abstract: Uses transaction cost economics (TCE) to provide a theoretical basis for exploring entrepreneurial entry strategies into foreign markets and their consequences. The study focuses on foreign export agents because this is often one of the earliest entry methods used by an entrepreneur. TCE is a useful approach that suggests a cost effective structure for conducting international operations; it provides a means to explore the general structure such relationships may use, why parties might contract, and problems and threats each partner might encounter. Entrepreneurial firms face greater risks in entering international trade than multi-national firms; since they are usually limited in resources, they must leverage their resources. Typically, entering firms suffer from information discrepancy regarding the target market; to succeed they ally with a local partner with knowledge of the target market who can leverage the entrepreneur's resources. The structure for transactions has two poles: market governance (open market transactions) and hierarchy governance (within firm transactions). Many relationships are, however, hybrid forms of partnership (with export agent), which provide protection against risk. For such partnerships to be beneficial, there must be information asymmetry. Problems and risks facing partnerships arise from threat of opportunism, adverse section, and moral hazard. Hybrid relationships solve these problems. Agency theory identifies specific relationship needs of the two parties, which are handled via a nexus of contracts, which fall on a continuum from behavior-oriented to outcome-oriented. Outcome contracts benefit the entrepreneur, whereas behavior contracts are preferred by the agents. Safeguards or bonding make behavior contracts resemble outcome contracts. Concludes with implications for entrepreneurs considering overseas opportunities and areas for further research. (TNM)

The impact of buyer dependence on buyer opportunism in buyer–supplier relationships: The moderating role of relational norms

Abstract: The impact of buyer dependence on opportunism against the supplier is examined in this research. Extant literature provides support for both a positive and an inverse relationship between these constructs. In this research, these competing predictions are subsumed under a more general model where the effect of dependence on opportunism is moderated by the level of relational norms present in the buyer–supplier relationship. Results of an experiment with purchasing managers and one replication provide support for the hypotheses that (a) dependence and opportunism will be positively related under low relational norms, and (b) dependence and opportunism will be inversely related under high relational norms. © 1997 John Wiley & Sons, Inc.

The Network Position of Small Businesses: An Explanatory Model

Abstract: The economic arena is growing more and more complex by the day - competition is stiffening, market demand is changing constantly, and government intervention does not make things easier. Small businesses are constantly faced with this incontrovertible reality. No doubt new opportunities are created, but there are certainly risks involved too. Networking, with its emphasis on informality and opportunism, is seen as an ideal mechanism for thriving in these variable environmental conditions (Birley, Cromie, and Myers 1991). The popular image of the entrepreneur as an isolated figure who overcomes obstacles and fends off dangers alone is at best incomplete (Dollinger 1985). Networks, involving organized systems of relationships between entrepreneurs and the outside world, are particularly valuable to the small business sector. The fragility which accompanies small size can be offset by the supportive environment provided by resilient networks (Szarka 1990). The research literature covers a wide variety of theoretical perspectives on network activity. Although some empirical work on the potential of network analysis for organizational interventions by means of "blockmodelling" has been carried out (White, Boorman, and Breiger 1976; Nelson 1988), as yet little has been done to make network theory operational in a way practical enough to help organizations position themselves in networks or develop network strategies (Paasche, Pettersen, and Solem 1993; Lago 1995; Provan and Milward 1995). With this article, we try to fill the empirical gap by analyzing the causal relationship between entrepreneur- and enterprise-related factors and networks, with the intention of contributing to the understanding of the factors that promote network formation. An in-depth analysis of these explanatory factors is deemed to be necessary before there can be discussion of the transferability of attractive network models and of policy initiatives to that end (Szarka 1990). In this article, we will first present the conceptual model, which describes the important role of entrepreneur- and enterprise-related characteristics on the network scene and the choice of network variables. This is followed by a description of the hypotheses anti by the methodology. Then we analyze the empirical results of the impact of entrepreneur- and enterprise-related elements on network formation. Finally, the main research results and their policy implications for small business owners, supporting institutions, and researchers are discussed. Conceptual Model Although the literature describes anti explains networks in many different ways, there is agreement that networks consist of organized systems of relationships, and hence a network is generally defined as a specific type of relation linking a defined set of persons, objects, or events (Nelson 1988; Szarka 1990). In this article, we shall not concentrate on the reasons why small businesses develop and participate in networks (for example, transaction cost motives, resource dependence, trust, and strategic considerations), but instead on the possible influence of entrepreneur- and enterprise-related characteristics on networks. Entrepreneur-related factors are included because research suggests that the entrepreneurs, embedded in their businesses and in the external environment, are the actual composers of the network elements. Birley (1990) stresses the fact that every set of relationships is unique and is determined by the person creating the network. In addition, entrepreneurs do not readily delegate network activity to subordinates (Birley, Cromie, and Myers 1991). Other studies have shown that a number of features specific to the company, such as its financial situation, orientation towards growth, organization, and approach to the human factor, differ according to the size of the company and the industry sector (Donckels et al. 1987; Donckels and Hoebeke 1991a, 1991b; Gray 1993). …

Highway Franchising: Pitfalls and Opportunities

Abstract: We build a conceptual framework to analyze the virtues and limitations of alternative mechanisms that can be used to auction a highway. We argue that current mechanisms, which fix the term of the franchise, create unnecesary risk and facilitate post-contract opportunism by the regulator and the franchise-holder. We propose a new mechanism that allocates the franchise to the firm asking the least present value of toll revenue. We argue that this mechanisms is clearly superior to those currently in use.

The Role of Opportunism in Transaction Cost Economics

Abstract: This paper attempts to evaluate the concept of opportunism and the role it plays within transaction cost economics (TCE). In particular, the paper questions the ubiquitous character of opportunism and the efficiency of governance structures built on it. It contends that a TCE failure to account for the diversity of human motivation and its asymmetric use of opportunism imply inefficiencies in organizational design. Biases in internal administrative systems lead to a neglect of the potential efficiency gains associated with the adoption of more participatory work organization structures. The analysis lends support to the view that the TCE presumption of an efficiency rationale for observed administrative structures is not always valid. The paper commences with a brief review of relevant TCE concepts. This is followed by an examination of the role assigned to opportunism within TCE. Since internalization, organizational form, and size are shown to depend significantly on opportunism, a critical evaluation of the assumption of opportunism and its role within TCE follows. The contention is that hierarchical structures can have adverse effects on behavior and that biases and theoretical inconsistencies in the utilization of opportunism exist. Failure to admit that individuals in positions of authority may exploit authority relations opportunistically implies that systems are designed without safeguards against subordinate exploitation leading to inefficiencies. Furthermore, the presumed enhancement in the allocative efficiency of multidivisional firms is shown to be inconsistent with the basic premises of TCE. The paper concludes by drawing together the main threads of the argument.

Transaction cost economics and contractual relations

Abstract: One of the key factors in the study of transaction costs economics is the concept of opportunism. Williamson (1986) develops a heuristic model of transaction costs and governance structures in which the critical dimensions, with respect to which transaction costs differ, are identified: the frequency of exchange, the degree of relationship-specific investment, and uncertainty. This work examines whether there is empirical support for Williamson's model. Firms in four different industries were interviewed about their contractual relationships with their customers or suppliers. The degree of transaction costs differs both across industries and across firms within an industry. Although the author finds that there is strong support for the Williamson (1986) model, a critical dimension omitted from this model is market structure. By affecting the risks of opportunism, she finds that market structure also has important consequences for the nature of contractual relations governing firms' transactions. Copyright 1997 by Oxford University Press.

Ritualism, opportunism and corporate disclosure in the New Zealand life insurance industry: field evidence

Abstract: Drawing a framework from Gibbins et al. (1990), uses information collected from field interviews to isolate those factors which influence the voluntary disclosure practices of New Zealand life insurance companies. Interview evidence suggests that voluntary disclosure is a multi‐dimensional phenomenon that is influenced by both firm‐specific antecedents such as company culture and environmental conditions, for example, the state of market competition. Gibbins et al. (1990) refer to these organizational and environmental determinants of corporate disclosure as ritualism and opportunism. The results of this study thus provide important insights into the voluntary disclosure practices of life insurance companies. Also concludes that field‐based research carried out within a sound conceptual framework could make a valuable contribution to the accounting literature and complement the results obtained in studies utilizing more conventional statistical techniques.

Public-Nonprofit Partnerships and North-South Green Finance:

Abstract: Environmental nongovernmental organizations working in partnership with the public and for-profit sectors are increasingly recognized as key players in international environmental politics and finance. This article examines a specific NGO partnership, the National Environmental Fund (NEF), which recently exploded in Latin America under the Enterprise for the Americas Initiative. This innovative institution is expected to increase economic efficiency by reducing transaction costs and fighting opportunism in North-South environmental finance. The article also highlights causes for concern and points to processes of distributional politics at work, alongside processes that may reinforce democracy.

Shirking and Sharking: A Legal Theory of the Firm

Abstract: This article reexamines economic theories of the firm from a legal perspective. Focusing on the importance of agency authority, it recommends a revision in economic theories of the firm which emphasize agency and transactions costs, contracts, property rights, and employment. A theory of the firm is advanced which encompasses various economic principles under a legal umbrella. From a legal perspective, this theory of the firm suggests a solution to a problem that economic theories have in defining the boundaries of firms. The structure of firms is described as involving both consumer markets for goods and services and organizational metamarkets. The costs of agents and principals, among other important factors, determine which firms survive over time. The article also recommends that a theory of the firm should include the costs of opportunism or sharking by principals or quasi-principals through the misuse of power and authority within firms, as well as the more commonly recognized agency costs of shirking. It concludes with examples of the implications of this analysis of the firm for the regulation of opportunism in the law of enterprise organization. In particular, it suggests that recognizing the costs of sharking as well as shirking supports judicial review of compliance with fiduciary duties in four different areas: oppression of minority shareholders, executive compensation, noncontractual harm to creditors, and financial reengineering of capital structure.

Judicial Detection Skill and Contractual Compliance

Abstract: Mutually beneficial agreements might fail if the parties fear contractual opportunism. Litigation is supposed to be a remedy, but gives scope for another kind of opportunistic behavior which we call litigational opportunism: Even knowing that the opponent has fulfilled his obligations, a party might bring suit. We introduce a new concept, called judicial detection skill, and show that positive judicial detection skill is a prerequisite if the court system is to deter opportunistic suits and simultaneously induce bilateral contractual compliance. The traditional literature on litigation either assumes judges with zero detection skill, or simply neglects that opportunistic suits might be successful. We prove that those models are unable to provide an answer to the question of how to prevent both types of opportunism simultaneously.

Strategic alliance use, firm size, outcome satisfaction, and partner behaviours

Abstract: The goals of this paper are twofold: first, to enhance our understanding of alliance use and its relationship with firm size; and, second, to analyse outcome satisfaction by considering the influence of perceptions about partner behaviour. Specifically three issues of importance to both organisational leaders and policymakers are explored. First, how many SMEs are engaging in strategic alliance activity; what forms of cooperation are they choosing or planning; and, how does this activity relate to firm size. Second, how satisfied with their cooperative efforts are those who have engaged in alliance activity. Finally, how is the degree of satisfaction influenced by perceptions of partner behaviour reflecting the transaction cost economics concept of opportunism.

Towards viable drinking water services.

Abstract: This article offers a framework for developing viable drinking water services and institutional development in developing countries The framework evolved from the authors research and field experience in transition and developing economies Viability is related to operative technology appropriate organizations and adequate cost recovery within the context of water resources human and economic resources sociocultural conditions and other constraints The ability of institutions to solve the problems of coordination and production depends upon player motivation the complexity of the environment and the ability of the players to control the environment Third party enforcement of agreements are essential to reduce gains from opportunism cheating and shirking Empirical research finds that per capita water production costs are 4 times higher in centralized systems and lowest in decentralized systems with coordination from a central party Three-tiered systems of governments regulators and service providers are recommended Management options must be consumer driven The worst case scenario is consumers reliance on vending and reselling with no alternative source of supply Policies should have a strong focus on institutional reforms in the water sector the development of a consumer driven water sector facilitation of appropriate private-public partnerships sound management of existing capital assets a system for building viability into national strategies for the water sector and financially self-sufficient and consumer responsible water supply organizations

The Buyer's Perspective on Transaction Costs and Relational Norms in the Distribution Channel: Prepositions for Research

Abstract: Some understanding and form of inter‐organisation management is necessary and desirable if a channel is to maintain or achieve satisfactory performance as a competitive entity (Stern and El‐Ansary 1992). Although this view is not novel (of. Alderson 1954,1957), it has not been the subject of extensive research (Frazier 1983), and interorganisational coordination in distribution channels has perhaps received less focus as a survival requirement (Dwyer and Oh 1988) than it deserves. Stern and El‐Ansary (1992) seem to reflect traditional points of view when stating that power is the major means available to achieve coordination and co‐operation among channel members. Power, however, gives rise to channel dependence and interdependence issues, (of. Pfeffer and Salancik 1978; Gaski 1984; Brown, Lusch and Muehling 1983), and issues of interorganisational governance mechanisms which for some years have also interested institutional economists, (of. Williamson 1993, 1991, 1986, 1981, 1975, Ouchi 1980) and economic sociologists, (of. Granovetter, 1985, Granovetter and Swedberg 1992). The marketing literature (of. Heide and John 1992; 1990; 1988) has questioned Williamson's somewhat simplistic treatment of opportunism as an underlying behavioural norm, central as this is to his transaction cost paradigm. Since Heide and John's [1992] work on the role of norms in marketing relationships, there is a distinct possibility that insufficient further research has been done in order to allow comparisons of their findings with those of other studies that differ with regard to cultures, settings, and time periods. Maintaining focus on the transaction between dyadic exchange partners as a fundamental activity in marketing channels (of. Achrol, Stern, and Reve 1983), the objectives of this article are to examine the existence or otherwise of relational norms between dyadic exchange partners serving as a governance mechanism safeguarding against opportunistic behaviour in the presence of transaction‐specific assets. The work of Heide and John [1992] shed much light on this, but examined the dyad from the perspective of a strong buyer facing a large number of small suppliers. We will focus on a strong supplier, facing a large number of small buyers, currently, but not indefinitely, bound to it by legislation and contract. The perspective adopted will be that of many small buyers (phar‐macies) from a monopolistic ethical drug wholesaler, at the time of dismantling of a statutory wholesale drug monopoly in Norway.

Highway Franchising: Pitfalls and Opportunities

Abstract: We build a conceptual framework to analyze the virtues and limitations of alternative mechanisms that can be used to auction a highway. We argue that current mechanisms, which fix the term of the franchise, create unnecesary risk and facilitate post-contract opportunism by the regulator and the franchise-holder. We propose a new mechanism that allocates the franchise to the firm asking the least present value of toll revenue. We argue that this mechanisms is clearly superior to those currently in use.