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Testing Williamson's Theory on Transaction-Specific Governance Structures: Evidence from Electricity Markets

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  • Laura Onofri

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, Taylor & Francis Journals, vol. 11(2), pages 355-372, November.
    • Handle: RePEc:taf:recsxx:v:11:y:2008:i:2:p:355-372
    DOI: 10.1080/15140326.2008.12040511
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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.

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