IDEAS home Printed from
   My bibliography  Save this paper

Assessing the risk for opportunism in collective IT investment: A principal-agent based framework for use in inter-firm networks


  • Hirnle, Christoph


When managing information technology (IT) infrastructure investments, companies traditionally try to evaluate the monetary costs and benefits of this information system (IS) or seek to implement prudent IT governance structures. However, when collective, cooperation-specific investments in interorganizational information system (IOS) are needed, these classic approaches are flawed as they do not account for central organization-theoretic specifics of investing in cooperation. There is a need for a more comprehensive instrument which includes economic network welfare as perceived individual utility inequalities will keep partners from joining, thereby diminishing network welfare and impeding a successful establishment of the cooperation. The central economic influence on individual utility in collective investments, as identified by Williamson (1985), is the risk for opportunism associated to an investment. The risk for opportunism in collective IT investment is operationalized in three steps: model construction, structured qualitative analysis of relevant investment scenarios with the help of Principal-Agent theory and result aggregation. In the end a novel risk assessment framework is presented. The framework allows any potential IOS participant to quickly read off the risk for opportunism he faces with different IOS alternatives. The discussion shows that purposeful collective IT investments have the following characteristics: every partner actively invests into the IOS, IOS operation is outsourced and, if the IOS is nevertheless sourced from within the cooperation, a decentralized IOS architecture is chosen. A concluding real life case demonstrates the application of the easy-to-use framework.

Suggested Citation

  • Hirnle, Christoph, 2005. "Assessing the risk for opportunism in collective IT investment: A principal-agent based framework for use in inter-firm networks," Working Papers 1/2005, University of Munich, Munich School of Management, Institute for Information Systems and New Media.
  • Handle: RePEc:zbw:lmuwim:12005

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-795, December.
    2. Timothy J. Sturgeon, 2002. "Modular production networks: a new American model of industrial organization," Industrial and Corporate Change, Oxford University Press, vol. 11(3), pages 451-496, June.
    3. Catherine Casamatta, 2003. "Financing and Advising: Optimal Financial Contracts with Venture Capitalists," Journal of Finance, American Finance Association, vol. 58(5), pages 2059-2086, October.
    4. Tridas Mukhopadhyay & Sunder Kekre, 2002. "Strategic and Operational Benefits of Electronic Integration in B2B Procurement Processes," Management Science, INFORMS, vol. 48(10), pages 1301-1313, October.
    5. Sugato Bhattacharyya & Francine Lafontaine, 1995. "Double-Sided Moral Hazard and the Nature of Share Contracts," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 761-781, Winter.
    6. 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.
    7. Spence, Michael & Zeckhauser, Richard, 1971. "Insurance, Information, and Individual Action," American Economic Review, American Economic Association, vol. 61(2), pages 380-387, May.
    8. Tiziana Casciaro, 2003. "Determinants of governance structure in alliances: the role of strategic, task and partner uncertainties," Industrial and Corporate Change, Oxford University Press, vol. 12(6), pages 1223-1251, December.
    9. Grossman, Sanford J & Hart, Oliver D, 1983. "An Analysis of the Principal-Agent Problem," Econometrica, Econometric Society, vol. 51(1), pages 7-45, January.
    10. Rubin, Paul H, 1978. "The Theory of the Firm and the Structure of the Franchise Contract," Journal of Law and Economics, University of Chicago Press, vol. 21(1), pages 223-233, April.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Hirnle, Christoph & Hess, Thomas, 2005. "Bewertung unternehmens├╝bergreifender IT Investitionen in Unternehmensnetzwerken: Ein Property-Rights basierter Zugang," Working Papers 4/2005, University of Munich, Munich School of Management, Institute for Information Systems and New Media.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:lmuwim:12005. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.