Showing papers on "Opportunism published in 2015"

The Simple Microeconomics of Public-Private Partnerships

Abstract: We build on the existing literature in public-private partnerships (PPP) to analyze the main incentive issues in PPPs and the shape of optimal contracts in those contexts. We present a basic model of procurement in a multitask environment in which a risk-averse firm chooses noncontractible efforts in cost reduction and quality improvement. We first consider the effect on incentives and risk transfer of bundling building and management stages into a single contract, allowing for different assumptions on feasible contracts and information available to the government. Then we extend the model in novel directions. We study the relationship between the operator and its financiers and the impact of private finance. We discuss the trade-off between incentive and flexibility in PPP agreements and the dynamics of PPPs, including cost overruns. We also consider how institutions, and specifically the risk of regulatory opportunism, affect contract design and incentives. The conclusion summarizes policy implications on the desirability of PPPs.

The impact of culture on the relationship between governance and opportunism in outsourcing relationships

Abstract: To address concerns of opportunism, outsourcing firms are encouraged to deploy contractual and relational governance. The individual and collective effects of these mechanisms have been previously examined but not in specific contexts. This study examines the effects of contractual and relational governance on provider opportunism, incorporating the moderating influence of a “shift parameter”—national culture. Our results reveal that contractual governance is more effective in individualistic and low uncertainty avoidance cultures. Relational governance is more effective in collectivist and high uncertainty avoidance societies. The individualism–collectivism dimension also moderates the joint effect of these mechanisms. While the mechanisms are generally complementary in mitigating opportunism, a singular focus on either contractual or relational can be just as effective under situations of high individualism and collectivism, respectively.

Opportunism in Distribution Networks: The Role of Network Embeddedness and Dependence

Abstract: Prior research documents the value of network relationships to firm behavior but is relatively silent on how networks influence opportunism in distribution channels. Focusing on a common type of distribution networks in which multiple distributors serve a single, dominant supplier, this study moves beyond a dyadic view to examine how a focal distributor's relational and structural embeddedness in such a distribution network influences its opportunism toward the dominant supplier. In particular, we postulate that a distributor's relational embeddedness in the network curbs its opportunism, whereas its network centrality, as a form of structural embeddedness in the network, promotes its opportunism. Moreover, we propose that relational embeddedness magnifies the role of a focal distributor's dependence on the supplier in suppressing the distributor's opportunism, whereas network centrality buffers such a role. We first empirically test these hypotheses using data collected from car dealers in China; the results provide support for the hypotheses. We then develop an analytical model to validate and further explain the underlying mechanisms of the network effects. Our analytical results not only validate the empirical results but also provide guidance for managers on controlling opportunism in distribution networks

Supplier Opportunism in Buyer–Supplier New Product Development: A China-U.S. Study of Antecedents, Consequences, and Cultural/Institutional Contexts

Abstract: Collaborating with a supplier in a buying firm's new product development (NPD) project is commonly advocated and adopted, but does not always improve project performance. Some pre-existing collaboration contexts, such as buyer–supplier NPD projects, are especially exposed to supplier opportunism due to the uncertain nature of the collaboration process. Adopting agency theory and transaction cost theory perspectives, we examine: (i) contextual antecedents and project consequences of supplier opportunism and (ii) if these causal influences vary in different cultural and institutional contexts. Using a survey sample of 214 United States (U.S.) and 212 Chinese buying firms’ responses about buyer–supplier NPD projects, we find that supplier opportunism is significantly influenced by the task and relational contexts. We also show that supplier opportunism damages both design quality and efficiency, two aspects of project performance. When comparing U.S. to China, we find that task and relational contexts have a greater impact on supplier opportunism in the U.S., but design efficiency is less hurt by supplier opportunism there. Finally, we show challenges of preventing supplier opportunism in certain NPD collaboration contexts, and offer solutions for overcoming these challenges.

Opportunism-Focused Transaction Cost Analysis of Public-Private Partnerships

Abstract: While the higher efficiency due to better pooling of resources is greatly emphasized in public–private partnerships (PPPs), the embedded transaction inefficiencies are often understated or even ignored. Through the lens of transaction cost economics (TCE), this paper aims to answer why and when PPPs may become a costly governance structure. Specifically, the authors develop a TCE-based theory of PPPs as a governance structure. This theory suggests that three major opportunism problems embedded in infrastructure PPPs are possible to cause substantial transaction costs and render PPPs a costly governance structure. The three main opportunism problems are principal–principal problem, firm’s hold-up problem, and government-led hold-up problem. Moreover, project and institutional characteristics that may lead to opportunism problems are identified. Based on these characteristics, an opportunism-focused transaction cost analysis (OTCA) of PPPs as a governance structure is proposed to supplement the curr...

The Influence of Institutional Forces on International Joint Ventures’ Foreign Parents’ Opportunism and Relationship Extendedness:

Abstract: Institutional forces influence the formation of international joint ventures (IJVs) in emerging economies and shape both their parents' behaviors and their marketing strategies. Whereas previous research has centered on governance mechanisms that deter opportunism, this study investigates the influence of institutional forces (i.e., rule of law, government intervention, and dysfunctional competition) on the IJV's foreign parent's opportunism. The authors find that rule of law and dysfunctional competition curtail opportunism, whereas government intervention drives opportunism. In addition, relationships between institutional forces in local markets and the IJV's foreign parent's opportunism depend on the IJV's marketing capability. The authors further examine the influence of the foreign parent's opportunism on IJV relationship extendedness and find support for a negative relationship between opportunism and the IJV's continuity. This study enriches institutional theory and identifies the boundar...

Knowledge sharing, commitment and opportunism in new product development

Abstract: Purpose – In today’s market, firms are riding on the wave of globalisation to enhance competitiveness through corporate collaboration in new product development (NPD). In joint NPD, huge amounts of information and knowledge are interchanged among business partners. However, industrial experience and past research have indicated that knowledge sharing among firms invite opportunism, that is, knowledge being leaked or misused by others. To determine the means to rectify the problems of opportunism in joint NPD, the purpose of this paper is to investigate the effect of commitment and knowledge sharing on opportunism. Design/methodology/approach – An online questionnaire survey was conducted to verify the research model with 312 valid responses from manufacturing firms. The survey data were analysed by structural equation modelling, and the findings were verified by follow-up interviews. Findings – Contradictory to most studies, this study finds that knowledge sharing among committed business partners suppres...

Contract Design Choices and the Balance of Ex-Ante and Ex-Post Transaction Costs in Software Development Outsourcing

Abstract: This paper examines multiple contract design choices in the context of transaction and relational attributes and consequent ex-ante and ex-post transaction costs. It focuses on two understudied themes in the IT outsourcing literature. First, while the literature is predominantly concerned with opportunism and consequent ex-post hazard costs that contracts can safeguard against, parties to a contract also economize on ex-ante transaction costs by their choice of contract type and contract extensiveness. Second, the literature studies the aggregate extensiveness of contracts rather than of distinct contract functions – safeguarding, coordination, and adaptability. Against this backdrop, our research model portrays a nuanced picture that is anchored in the following theoretical interpretation: transaction and relational attributes have implications on specific ex-ante and ex-post transaction costs, and these implications can be balanced by respective choices in both contract type and the extensiveness of specific contract functions. These two contract design choices complement and substitute for each other in their ability to economize on specific transaction costs. Our analysis of 210 software development outsourcing contracts finds that explanatory power increases when analyzing the extensiveness of individual contract functions rather than the aggregate contract extensiveness, highlighting subtle competing influences that are otherwise masked by an aggregate measure. Our analysis also shows that a preference for Time-and-Material contracts counteracts the effect of certain transaction attributes on contract extensiveness, and even cancels it out in the case of transaction uncertainty.

Effects of external uncertainties and power on opportunism in supply chains: evidence from China

Abstract: This study examines the determinants of opportunism in supply chain relationships in emerging markets. Drawing on transaction cost theory and resource dependence theory, we propose that external uncertainties (environmental uncertainty and legal unprotectability) influence opportunism through power (coercive and non-coercive). The results, based on 240 companies in China, indicate that environmental uncertainty enhances supplier opportunism directly and indirectly through the buyer’s use of coercive power over the supplier, while legal unprotectability enhances supplier opportunism directly, but reduces it indirectly through the buyer’s use of non-coercive power. While buyer coercive power increases supplier opportunism, buyer non-coercive power decreases it.

Government opportunism in public-private partnerships

Abstract: This paper analyzes the contracting out of public services through public-private partnerships (PPP) subject to government opportunism. In PPP, the building of public infra-structure and the provision of related services are procured through only one contract. On the one hand, such bundling of tasks provides incentives to invest in the infrastructure to minimize the cost of providing public services over the long term. On the other hand, it creates incentives for the government to behave opportunistically, by not respecting the terms of the long-term contractual agreement. Contrarily, in the traditional procurement (TP), the public service provision tasks are contracted out separately. The purpose of this paper is two fold. First, we show that government commitment not to engage in opportunistic behavior is the key factor determining the cost efficiency of PPP. Second, we specify the economic determinants of government's choice between PPP and TP under government opportunism.

The role of board characteristics in mitigating management opportunism: The case of real earnings management

Abstract: This study seeks to provide empirical evidence of the efficacy of board characteristics in constraining management opportunism, measured by real earnings management. The paper uses regression analysis to document empirical evidence regarding the impact of the independence of boards of directors and the independence of committees on real earnings management in 7,481 US firms over the period 2000 to 2009. This study contributes to empirical studies on the role of corporate governance in financial reporting quality by demonstrating the role of the independence of boards of directors and the independence of committees in constraining real earnings management. These results should contribute to providing an orientation for future regulators regarding possible amendments, especially in the wake of the current financial crisis.

Understanding Alliance Evolution and Termination: Adjustment Costs and the Economics of Resource Value

Abstract: Alliances have been studied extensively in the past and various arguments suggested to explain their evolution and eventual termination. We argue that one important explanation of alliance termination has remained overlooked, one where the mechanism revolves around resource value and is independent of any mismanagement, opportunism, lack of trust, interpretive misunderstanding, or perceptions of inequity. In this explanation, we recognize explicitly that resources undergo transformation through an alliance, and this transformation reveals new previously imperfectly predicted costs to remaining in the alliance as well as new opportunities outside the alliance. We apply the concepts of direct and indirect adjustment costs and inter-temporal economies of scope to explain these phenomena and demonstrate that, depending on the particular structure of incentive asymmetry between the two firms after alliance formation, the new circumstances may motivate a revised cost/profit sharing arrangement, a change in ownership of alliance resources, or a complete dissolution of the alliance. Some determinants of adjustment costs are explored in detail, covering resource characteristics, resource combination characteristics, and environment characteristics. Based on the economics of resource value, our argument has implications not just for alliance evolution and termination but also provides a distinct lens to explain the evolution of firm boundaries and the manner of transition of alliances into acquisitions.

Alliance Experience and Governance Flexibility

Abstract: Prior work has mapped the transaction at the heart of an alliance to the risks of opportunism inherent in that alliance and, ultimately, to how the alliance is structured and governed. We extend this approach by noting that the parties in an alliance do not necessarily perceive the same hazards as predominant and thus may have different preferences for how the alliance is structured. Nevertheless, it is in each party's best interest to find a structure that protects its interests, while also allowing its partner to protect its interests sufficiently. Drawing from the alliance management capabilities literature, we argue that firms with more alliance experience are better able to protect their interests under any given alliance structure, making the choice of structure less consequential to them. The resulting governance versatility provides a competitive advantage by enabling firms to form advantageous alliances that are less available to inexperienced competitors. Our study of innovative alliances in biopharmaceutical industry lends support to the hypotheses, allowing us to advance the literature on governance choice in alliances, the literature on alliance management, and their intersection.

Attacked from Both Sides: A Dynamic Model of Multinational Corporations' Strategies for Protection of Their Property Rights

Abstract: Multinationals operating in site-specific industries face two types of opportunistic behavior. If they vertically integrate, host governments have incentives to change existing legislation challenging the firms' property rights. If they do not, they can be held up by business partners or lose control over the production process. These conflicting problems are reflected in the contradictory assessment made by the obsolescing bargaining power and transaction costs economics theories. Drawing on property rights theory, we introduce political integration as a strategy to address the two conflicting problems. It involves the integration of the host country's polities within the multinational's structure to avoid government opportunism, while still benefiting from the advantages of vertical integration. However, this strategy can backfire after institutional changes in the host country.

Vertical Contracting with Informational Opportunism

Abstract: We consider vertical contracting arrangements between a manufacturer and a retailing network when retailers have private information and the organization is run through bilateral contracts. We highlight a new form of informational opportunism arising when the manufacturer manipulates information learned separately in each relationship. We characterize the set of allocations robust to such opportunism by means of simple ex post incentive compatibility constraints. Those constraints limit the manufacturer’s ability to use yardstick competition among retailers. They simplify contracts and restore a rent/efficiency trade-off even with correlated information. We show that sell-out contracts are optimal under a wide range of circumstances.

Understanding alliance evolution and termination: Adjustment costs and the economics of resource value:

Abstract: Alliances have been studied extensively in the past and various arguments have been suggested to explain their evolution and eventual termination. We argue that one important explanation of alliance termination has remained overlooked, one where the mechanism revolves around resource value and is independent of any mismanagement, opportunism, lack of trust, interpretive misunderstanding, or perceptions of inequity. In this explanation, we recognize explicitly that resources undergo transformation through an alliance, and this transformation reveals new previously imperfectly predicted costs to remain in the alliance as well as new opportunities outside the alliance. We apply the concepts of direct and indirect adjustment costs and inter-temporal economies of scope to explain these phenomena and demonstrate that, depending on the particular structure of incentive asymmetry between the two firms after alliance formation, the new circumstances may motivate a revised cost/profit sharing arrangement, a change in ownership of alliance resources, or a complete dissolution of the alliance. Some determinants of adjustment costs are explored in detail, covering resource characteristics, resource combination characteristics, and environment characteristics. Based on the economics of resource value, our argument has implications not just for alliance evolution and termination but also provides a distinct lens to explain the evolution of firm boundaries and the manner of transition of alliances into acquisitions.

Governing Local Supplier Opportunism in China: Moderating Role of Institutional Forces

Abstract: Given the prominent role of China as a manufacturing supply base, how to curtail local supplier opportunism becomes a central concern for both domestic and foreign buyers. Drawing on the institutional view, this study examines how policy uncertainty and ownership structures moderate the roles of explicit contracts and trust in restricting local supplier opportunism in China. Based on the analysis of 293 buyer-supplier dyadic relationships in China, this study finds that explicit contracts are effective in safeguarding against opportunism when policy uncertainty is high, whereas trust reduces opportunism when policy uncertainty is low. Further, for foreign buyers, the use of trust is more salient in deterring local supplier opportunism than local buyers; yet explicit contracts are more effective for domestic interfirm transactions to constrain local partner opportunism than international exchanges.

Exploring the Venture Capitalist-Entrepreneur Relationship: Evidence from India

Abstract: Maintaining cooperation and avoiding opportunism is essential for a healthy Venture Capitalist (VC)-entrepreneur relationship. Therefore, the purpose of this paper is to explore the role of control and trust for developing a cooperative VC-Entrepreneur relationship in an agency environment in the Indian context. The study adopts a multiple case study approach to investigate 10 VC-Entrepreneur dyads. It uses data collected from both primary and secondary sources. Content analysis was used as the data treatment technique. The empirical evidence indicates that VC-Entrepreneur relationships emerging in the early stages suffer from low agency risks and use more of relational mechanisms to curb opportunism and develop cooperation while relationships at an advanced stage suffer from higher agency risks and employ more of control mechanisms to address it. The findings can be utilized to enhance cooperation in VC-Entrepreneur relationship by identifying the appropriate context to apply relational or control mechanisms, which would eventually lead to better performance of the venture. This distinction results in the development of a theoretical model which shows how the dual governance mechanisms of control and trust interact with one another to affect confidence in partner cooperation as an entrepreneurial venture raises multiple rounds of venture capital across various stages. The data collected from Indian VC-Entrepreneur dyads offers a rich description of the relationship dynamics across the Indian entrepreneurial ecosystem.

Forging a New Democratic Party: The Politics of the Third Way From Clinton to Obama

Abstract: This dissertation analyzes the evolution of the American Democratic Party’s ideological orientation from 1985 to 2014. The central problem is to develop an understanding of how shifts in political-economic context and factional agency combine to produce alterations in the predominant ideology of a U.S. political party. The primary question posed is how the centrist perspective known as the ‘third way’ replaced the left-liberalism of the New Deal and Great Society eras as the guiding public philosophy of the Democratic Party. Whereas many scholars propose that the modern third way revisionism of center-left parties is explained primarily as electoral opportunism or as an adoption of the political logic of the New Right, this study focuses on how changes in political economy (particularly the transition from Keynesianism to neoliberalism) prompted the elaboration of an alternative ideological framework that sought to adapt to new times. In the U.S. case, the primary agent of this process of ideological reorientation was the New Democrat faction, most well-known for its connection to President Bill Clinton. Combining qualitative document analysis and focused interviews with personnel from the think-tanks and policy institutes of the New Democrat faction and its competitors, the dissertation finds that the initiation and maintenance of reorientation is dependent on a faction’s success in elaborating and continually ‘decontesting’ an alternative framework that de-legitimatizes a party’s pre-existing ideological commitments. Adapting Michael Freeden’s approach to the study of ideologies, a conceptual morphology, or map, of third way politics is presented that centers on the particular meanings of opportunity, responsibility, and community elaborated by the New Democrats. These ‘decontested’ concepts signified a commitment to equality of opportunity over egalitarian outcomes, a vision of the welfare state centered on obligation rather than entitlement, and a devotion to communitarian rather than class or identity politics. By analyzing the process of continuous decontestation engaged in by this faction, the dissertation argues that the third way not only constitutes a distinct ideological system, but that it has been the predominant policymaking outlook of the Democratic Party for nearly a quarter century – stretching from Clinton to Obama and possibly beyond.

Opportunism and Diversification: Entrepreneurship and Livelihood Strategies in Uncertain Times

Abstract: As economic crisis deepens across Europe people are forced to find innovative strategies to accommodate circumstances of chronic uncertainty. Even with a second multi-billion euro bailout package secured for Greece, the prospects of a sustainable recovery in the near future look bleak. However, crisis has also created dynamic spaces for entrepreneurial opportunism and diversification resulting in social mobility, relocation, shifts in livelihood strategy and a burgeoning informal economy. Although economic systems are currently undergoing radical reassessment, social demands such as competitive consumption remain. Opportunities for investment in renewable energy programmes, especially photovoltaics, are also pervasive. By considering cases of business opportunism and livelihood diversification in relation to Max Weber's concept of wertrational and notions of uncertainty, this article brings new perspectives to strategies of negotiating the worst economic crisis in living memory.

Vendor opportunism in IT outsourcing: a TCE and social capital perspective

Abstract: Academic researchers have paid significant attention to the drivers of opportunistic behavior, yet our understanding of how opportunistic behavior can be mitigated remains relatively fragmented. Our investigation will focus on the social context and more specifically on the role of social capital in the deterrence of opportunistic behavior. On the basis of two qualitative case studies in the financial sector, we will illustrate how the structural, cognitive and relational dimensions of social capital can reduce internal and behavioral uncertainty between the outsourcing partners, thereby facilitating the mitigation of opportunistic behavior. In our study we combine the theory of transaction costs with social capital theory and demonstrate how they can usefully complement each other to enhance our understanding of mechanisms that can deter opportunistic behavior.