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Inter-Organizational Trust as a Shift Parameter in the Extended Transaction Cost Framework: A first Application to the LNG Industry

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  • Sophia Ruester

Abstract

This paper provides an empirical analysis examining the effect of both transaction characteristics and the institutional environment on governance choice. Using a dataset of 237 corporate-specific value chains in the global LNG industry, we introduce inter-organizational trust as a shift parameter. Following transaction cost economics, it is hypothesized that specific investments under uncertainty provide incentives to integrate vertically. Second, it is argued that inter-organizational trust changes the relative costs of vertical integration and non-integration and supports less hierarchical organizational structures. These economic relationships are tested based on probit and ordered probit models. Estimation results provide broad support for both propositions.

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File URL: http://cadmus.eui.eu/dspace/bitstream/1814/13579/1/RSCAS_2010_18.pdf
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Bibliographic Info

Paper provided by European University Institute in its series RSCAS Working Papers with number 2010/18.

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Date of creation: 29 Jan 2010
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Handle: RePEc:rsc:rsceui:2010/18

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Related research

Keywords: Inter-organizational trust; liquefied natural gas; shift parameter; transaction cost economics; vertical integration;

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  1. Fehr, Ernst, 2008. "On the Economics and Biology of Trust," IZA Discussion Papers 3895, Institute for the Study of Labor (IZA).
  2. Oxley, Joanne E., 1999. "Institutional environment and the mechanisms of governance: the impact of intellectual property protection on the structure of inter-firm alliances," Journal of Economic Behavior & Organization, Elsevier, vol. 38(3), pages 283-309, March.
  3. Ranjay Gulati & Maxim Sytch, 2008. "Does familiarity breed trust? Revisiting the antecedents of trust," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 29(2-3), pages 165-190.
  4. W. J. Henisz, 2000. "The Institutional Environment for Economic Growth," Economics and Politics, Wiley Blackwell, vol. 12(1), pages 1-31, 03.
  5. Williamson, Oliver E, 1993. "Calculativeness, Trust, and Economic Organization," Journal of Law and Economics, University of Chicago Press, vol. 36(1), pages 453-86, April.
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