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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.

Suggested Citation

  • Sophia Ruester, 2010. "Inter-Organizational Trust as a Shift Parameter in the Extended Transaction Cost Framework: A first Application to the LNG Industry," RSCAS Working Papers 2010/18, European University Institute.
  • Handle: RePEc:rsc:rsceui:2010/18
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    References listed on IDEAS

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    1. Ernst Fehr, 2009. "On The Economics and Biology of Trust," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 235-266, 04-05.
    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. Williamson, Oliver E, 1993. "Calculativeness, Trust, and Economic Organization," Journal of Law and Economics, University of Chicago Press, vol. 36(1), pages 453-486, April.
    4. 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.
    5. W. J. Henisz, 2000. "The Institutional Environment for Economic Growth," Economics and Politics, Wiley Blackwell, vol. 12(1), pages 1-31, March.
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    1. repec:bla:ijhplm:v:31:y:2016:i:4:p:554-579 is not listed on IDEAS

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    Keywords

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

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