From Linear to Circular Economy: a Transaction Cost Approach to the Ecological Transformation of the Firm

Ownership and control have been the strategic focus of organizational analyses to achieve performance. The emergence of sustainable strategies has, however, confronted conventional organizational theory because performance has become a complex concept containing both social elements and environmental dimensions together with conventional economic aspects. Increased climate change, temperature risk, and environmental hazards, as well as intertwined social consequences, create a need for new theoretical insights to understand the emerging circular organization of product lifecycle networks. The ongoing climate crisis calls for new institutional approach that challenges future organizational structures. We present a framework for integrating low-carbon ecological transformation from linear to sustainable circular inter-organizational networks. The global and circular economy increases performance ambiguity, the uncertainty of eco-opportunism, information asymmetry, and transaction costs. Consequently, sustainability makes it necessary to integrate and control organizations throughout the supply chain to avoid eco-opportunism and to economize transaction costs.