Assessing the risk for opportunism in collective IT investment: A principal-agent based framework for use in inter-firm networks
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.
|Date of creation:||2005|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.en.wim.bwl.uni-muenchen.de/|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Casamatta, Catherine, 2002.
"Financing and Advising: Optimal Financial Contracts with Venture Capitalists,"
CEPR Discussion Papers
3475, C.E.P.R. Discussion Papers.
- 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.
- 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.
- 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 223-33, April.
- Sanford J Grossman & Oliver D Hart, 2001.
"An Analysis of the Principal-Agent Problem,"
Levine's Working Paper Archive
391749000000000339, David K. Levine.
- Sanford Grossman & Oliver Hart, . "An Analysis of the Principal-Agent Problem," Rodney L. White Center for Financial Research Working Papers 15-80, Wharton School Rodney L. White Center for Financial Research.
- Alchian, Armen A & Demsetz, Harold, 1972.
"Production , Information Costs, and Economic Organization,"
American Economic Review,
American Economic Association, vol. 62(5), pages 777-95, December.
- Armen A. Alchian & Harold Demsetz, 1971. "Production, Information Costs and Economic Organizations," UCLA Economics Working Papers 10A, UCLA Department of Economics.
- 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.
- Spence, Michael & Zeckhauser, Richard, 1971. "Insurance, Information, and Individual Action," American Economic Review, American Economic Association, vol. 61(2), pages 380-87, May.
- 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.
- 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.
- 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.
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)
If references are entirely missing, you can add them using this form.