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Fairness and Transaction Costs: The Contribution of Organizational Justice Theory to an Integrative Model of Economic Organization

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  • Bryan W. Husted

    (Instituto Tecnológico y de Estudios Superiores de Monterrey and Instituto de Empresa, ITESM/EGADE, Ave. Eugenio Garza Sada 2501 Sur, C.P. 64849 Monterrey, N.L., Mexico)

  • Robert Folger

    (College of Business Administration, University of Central Florida, 4000 Central Florida Boulevard, Orlando, Florida 32816)

Abstract

In this article, we begin to integrate two fields that have, until now, remained largely independent of one another: organizational justice and transaction-cost economics. Transaction costs consist of search, bargaining, monitoring, enforcement, and other costs not directly related to the production of goods or services. Usually such costs are attributed to difficulties in measurement (the metering problem) or difficulties in redeploying assets to alternative uses (asset specificity). These variables are thought to be objective features of economic transactions. Rarely are the social-psychological dimensions of these objective features taken into account. Although economic transactions are fundamentally human activities, human behavior in the economics literature is usually reduced to such simplifying assumptions as shirking and bounded rationality. In this article, we develop a model of transaction costs based on a more complete description of human psychology as it operates in exchange relationships.We argue that transaction costs are often due to the difficulty of evaluating the fairness of a specific exchange of goods and services. Besides asset specificity and the metering problem, which are treated in the transaction-cost economics literature, the organizational justice literature is especially relevant. Beginning with the work of Ouchi (1980), the paper examines some of the ways that the organizational justice literature complements transaction-cost economics. Because mechanisms that order economic transactions are essentially conflict-resolution structures, we develop a model of economic organization in which transaction costs are related to the perception of fairness in economic exchange. In the literature, governance mechanisms are selected so as to minimize transaction costs. Based on the organizational justice framework, we suggest that the transaction-cost calculus is affected by the perception of fairness in the exchange. In addition, the relationship between the governance mechanism and the perception of fairness is moderated by the elements of interactional justice that characterize the exchange.

Suggested Citation

  • Bryan W. Husted & Robert Folger, 2004. "Fairness and Transaction Costs: The Contribution of Organizational Justice Theory to an Integrative Model of Economic Organization," Organization Science, INFORMS, vol. 15(6), pages 719-729, December.
  • Handle: RePEc:inm:ororsc:v:15:y:2004:i:6:p:719-729
    DOI: 10.1287/orsc.1040.0088
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    Cited by:

    1. Cam Caldwell & Mark Hansen, 2010. "Trustworthiness, Governance, and Wealth Creation," Journal of Business Ethics, Springer, vol. 97(2), pages 173-188, December.
    2. Marc Fréchet, 2007. "Les difficultés relationnelles dans les partenariats d’innovation:une approche par le contrat psychologique," Revue Finance Contrôle Stratégie, revues.org, vol. 10(1), pages 125-148, March.
    3. Ghasem Zaefarian & Matthew J. Robson & Zhaleh Najafi-Tavani & Stavroula Spyropoulou, 2023. "Relationships of stressors and opportunism in cross-border exchange partnership contexts: When and how monitoring matters," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 54(3), pages 441-475, April.
    4. repec:osf:socarx:txmdy_v1 is not listed on IDEAS
    5. Natàlia Cugueró-Escofet & Marion Fortin, 2014. "One Justice or Two? A Model of Reconciliation of Normative Justice Theories and Empirical Research on Organizational Justice," Journal of Business Ethics, Springer, vol. 124(3), pages 435-451, October.
    6. Huo, Baofeng & Wang, Zhiqiang & Tian, Yu, 2016. "The impact of justice on collaborative and opportunistic behaviors in supply chain relationships," International Journal of Production Economics, Elsevier, vol. 177(C), pages 12-23.
    7. Evelien Croonen, 2010. "Trust and Fairness During Strategic Change Processes in Franchise Systems," Journal of Business Ethics, Springer, vol. 95(2), pages 191-209, August.
    8. Lumineau, Fabrice & Frechet, Marc & Puthod, Dominique, 2011. "An organizational learning perspective on contract design," MPRA Paper 38360, University Library of Munich, Germany.
    9. Africa Ariño & Roberto Ragozzino & Jeffrey J. Reuer, 2008. "Alliance Dynamics for Entrepreneurial Firms," Journal of Management Studies, Wiley Blackwell, vol. 45(1), pages 147-168, January.
    10. Laura Poppo & Kevin Zheng Zhou & Sungmin Ryu, 2008. "Alternative Origins to Interorganizational Trust: An Interdependence Perspective on the Shadow of the Past and the Shadow of the Future," Organization Science, INFORMS, vol. 19(1), pages 39-55, February.
    11. Mi Che & Xu Jiang & Yun-Long Pei, 2024. "When does justice drive alliance success? Direct and moderating effects based on transaction cost theory," Asia Pacific Journal of Management, Springer, vol. 41(4), pages 1927-1961, December.
    12. Cam Caldwell & Linda Hayes & Do Long, 2010. "Leadership, Trustworthiness, and Ethical Stewardship," Journal of Business Ethics, Springer, vol. 96(4), pages 497-512, November.
    13. Mesbahuddin Chowdhury & Ananya Bhattacharya & Mona Koushan, 2025. "Supplier Justice Practice in Building Buyers’ Resilience: A Mediated-Moderation Model," Global Journal of Flexible Systems Management, Springer;Global Institute of Flexible Systems Management, vol. 26(1), pages 171-205, March.
    14. Fabrice Lumineau & Marc Fréchet & Dominique Puthod, 2011. "An organizational learning perspective of the contracting process," Post-Print halshs-01019320, HAL.
    15. Habib Mahama & Zhichao (Alex) Wang, 2023. "Impact of the interactive and diagnostic uses of performance measurement systems on procedural fairness perception, cooperation and performance in supply alliances," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(3), pages 3253-3296, September.
    16. Laura Poppo & Kevin Zheng Zhou, 2014. "Managing contracts for fairness in buyer–supplier exchanges," Strategic Management Journal, Wiley Blackwell, vol. 35(10), pages 1508-1527, October.
    17. Döring, Matthias, 2020. "“Explain, but make no Excuses”: Service Recovery after Public Service Failures," SocArXiv txmdy, Center for Open Science.
    18. Randi Lunnan & Sverre Tomassen & Ulf Andersson & Gabriel R. G. Benito, 2019. "Dealing with headquarters in the multinational corporation: a subsidiary perspective on organizing costs," Journal of Organization Design, Springer;Organizational Design Community, vol. 8(1), pages 1-24, December.
    19. Laura Poppo, 2010. "Strategy and Transaction Costs," Chapters, in: Peter G. Klein & Michael E. Sykuta (ed.), The Elgar Companion to Transaction Cost Economics, chapter 21, Edward Elgar Publishing.
    20. Anna Lamin & Srilata Zaheer, 2012. "Wall Street vs. Main Street: Firm Strategies for Defending Legitimacy and Their Impact on Different Stakeholders," Organization Science, INFORMS, vol. 23(1), pages 47-66, February.
    21. Kim, Seongtae & Park, Arim & Wagner, Stephan M., 2024. "Owner-operator experience and violations in trucking: The mixed role of perceived justice," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 188(C).
    22. John D. Marvel, 2020. "Evolution and egalitarianism: A behavioral account of managers' performance pay decisions," Journal of Behavioral Public Administration, Center for Experimental and Behavioral Public Administration, vol. 3(2).
    23. Haoyang Song & Jianhua Hou & Shiqi Tang, 2021. "From Contractual Flexibility to Contractor’s Cooperative Behavior in Construction Projects: The Multiple Mediation Effects of Ongoing Trust and Justice Perception," Sustainability, MDPI, vol. 13(24), pages 1-21, December.

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