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Transaction Costs and Organizational Choice: Modeling Governance in Offshore Drilling

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  • Christopher Jablonowski
  • Andrew Kleit

Abstract

This research examines oil company decisions to vertically integrate into the drilling function using a transaction cost economics framework. Risk preference is also investigated as an explanation of organizational choice. Econometric models are specified and estimated for organizational choice and for the cost functions of competing organizational options. Estimation of the cost functions permits isolation of the effects of transaction attributes to each form of organization, shedding light on the relative impacts of hazards of exchange and internal costs. Results provide support for both the transaction cost and risk preference hypotheses as determinants of organizational form. The cost functions also enable estimation of the transaction costs and incentive gains of outsourcing.

Suggested Citation

  • Christopher Jablonowski & Andrew Kleit, 2011. "Transaction Costs and Organizational Choice: Modeling Governance in Offshore Drilling," The Engineering Economist, Taylor & Francis Journals, vol. 56(1), pages 28-58.
    • Handle: RePEc:taf:uteexx:v:56:y:2011:i:1:p:28-58
    DOI: 10.1080/0013791X.2010.549934
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    Cited by:

    1. Christopher J. Jablonowski & Douglas P. MacEachern, 2023. "Transaction costs and the value of a good reputation: evidence from the offshore drilling rig market," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 22(5), pages 399-412, October.

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