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Contracts in Offshore Software Development: An Empirical Analysis

  • Anandasivam Gopal

    ()

    (Robert H. Smith School of Business, University of Maryland, College Park, Maryland 20742)

  • Konduru Sivaramakrishnan

    ()

    (Bauer College of Business, University of Houston, Houston, Texas 77204)

  • M. S. Krishnan

    ()

    (University of Michigan Business School, University of Michigan, Ann Arbor, Michigan 48109)

  • Tridas Mukhopadhyay

    ()

    (Graduate School of Industrial Administration, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213)

Registered author(s):

    We study the determinants of contract choice in offshore software development projects and examine how the choice of contract and other factors in the project affect project profits accruing to the software vendor. Using data collected on 93 offshore projects from a leading Indian software vendor, we provide evidence that specific vendor-, client-, and project-related characteristics such as requirement uncertainty, project team size, and resource shortage significantly explain contract choice in these projects. Our analysis suggests that contract choice significantly determines project profit. Additionally, some ex ante vendor-, client-, and project-related characteristics known at the time of choosing the contract continue to significantly influence project profits after controlling for contract choice. We also provide evidence to show that project duration and team size affect project profits.

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    File URL: http://dx.doi.org/10.1287/mnsc.49.12.1671.25120
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    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 49 (2003)
    Issue (Month): 12 (December)
    Pages: 1671-1683

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    Handle: RePEc:inm:ormnsc:v:49:y:2003:i:12:p:1671-1683
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    1. Seungjin Whang, 1995. "Market Provision of Custom Software: Learning Effects and Low Balling," Management Science, INFORMS, vol. 41(8), pages 1343-1352, August.
    2. James J. Heckman, 1976. "The Common Structure of Statistical Models of Truncation, Sample Selection and Limited Dependent Variables and a Simple Estimator for Such Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 5, number 4, pages 475-492 National Bureau of Economic Research, Inc.
    3. Williamson, Oliver E, 1979. "Transaction-Cost Economics: The Governance of Contractural Relations," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 233-61, October.
    4. Keane, Michael P & Runkle, David E, 1990. "Testing the Rationality of Price Forecasts: New Evidence from Panel Data," American Economic Review, American Economic Association, vol. 80(4), pages 714-35, September.
    5. Lovell, Michael C, 1986. "Tests of the Rational Expectations Hypothesis," American Economic Review, American Economic Association, vol. 76(1), pages 110-24, March.
    6. Abhijit V. Banerjee & Esther Duflo, 2000. "Reputation Effects and the Limits of Contracting: A Study of the Indian Software Industry," The Quarterly Journal of Economics, Oxford University Press, vol. 115(3), pages 989-1017.
    7. Keith J. Crocker & Kenneth J. Reynolds, 1993. "The Efficiency of Incomplete Contracts: An Empirical Analysis of Air Force Engine Procurement," RAND Journal of Economics, The RAND Corporation, vol. 24(1), pages 126-146, Spring.
    8. Donald E. Harter & Mayuram S. Krishnan & Sandra A. Slaughter, 2000. "Effects of Process Maturity on Quality, Cycle Time, and Effort in Software Product Development," Management Science, INFORMS, vol. 46(4), pages 451-466, April.
    9. M. S. Krishnan & C. H. Kriebel & Sunder Kekre & Tridas Mukhopadhyay, 2000. "An Empirical Analysis of Productivity and Quality in Software Products," Management Science, INFORMS, vol. 46(6), pages 745-759, June.
    10. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
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