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Testing Williamson's theory on transaction-specific governance structures: Evidence from electricity markets

Author

Listed:
  • Laura Onofri

    (University of Venice Ca Foscari and Fondazione ENI Enrico Mattei)

Abstract

Long term contracts increase the hazard of ex post maladaptation, creating demand for processes that enable adaptation over the course of long-term exchange. Enabling adaptation, however, may diminish the effectiveness of the long-term contracts, designed as prima facie hold-up remedies. Following Joskow (1987), we attempt to empirically capture the positive relationship between physical asset specificity and the duration of long-term contracts between California electricity generators. In addition, following Masten and Crocker (1985), we try to measure the effect of legal provisions on contract duration and interpret them as efficient instruments for providing flexibility in long-term relationships. The more important the investment in relationship-specific assets, the longer the contractual duration. However, parties mitigate long-term contract inflexibility, based on ex ante bargained terms and conditions, with provisions that allow for contingent adaptation. Our empirical results provide support for the hypothesised relationships under different model specifications and alternative estimation techniques.

Suggested Citation

  • Laura Onofri, 2008. "Testing Williamson's theory on transaction-specific governance structures: Evidence from electricity markets," Journal of Applied Economics, Universidad del CEMA, vol. 11, pages 355-372, November.
    • Handle: RePEc:cem:jaecon:v:11:y:2008:n:2:p:355-372
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    File URL: https://ucema.edu.ar/publicaciones/download/volume11/onofri.pdf
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    Citations

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    Cited by:

    1. Rajesh Singh & Quinn Weninger, 2017. "Cap-and-trade under transactions costs and factor irreversibility," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 64(2), pages 357-407, August.
    2. Onofri, Laura, 2014. "Material transfer agreements: An economic and econometric analysis," Ecological Economics, Elsevier, vol. 107(C), pages 422-430.
    3. Wu, Lei-Yu & Chen, Po-Yuan & Chen, Kuan-Yang, 2015. "Why does loyalty–cooperation behavior vary over buyer–seller relationship?," Journal of Business Research, Elsevier, vol. 68(11), pages 2322-2329.
    4. Laura Onofri & Samuele Trestini & Fateh Mamine & Jason Loughrey, 2023. "Understanding agricultural land leasing in Ireland: a transaction cost approach," Agricultural and Food Economics, Springer;Italian Society of Agricultural Economics (SIDEA), vol. 11(1), pages 1-20, December.

    More about this item

    Keywords

    electricity long-term contracts; idiosyncratic relations; asset specificity; efficient adaptation;
    All these keywords.

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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