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Integrating transaction costs theory and real options theory

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  • Ron Sanchez

    (IMD-International Institute for Management Development, Lausanne, Switzerland)

Abstract

This paper develops an integration of transactions costs theory and real options theory that leads to a more complete representation of the problem of economic organizing. By recognizing the opportunity costs associated with internalization of specific-use assets when flexible assets are also available, the integrated theoretical framework provides better insights into optimal strategies for configuring value chains under supply-side and demand-side uncertainty. This expanded model of economic organizing suggests four optimal strategies for configuring value chains and predicts four prevailing forms of economic organization under varying combinations of contracting (supply-side) and market (demand-side) uncertainty. Copyright © 2003 John Wiley & Sons, Ltd.

Suggested Citation

  • Ron Sanchez, 2003. "Integrating transaction costs theory and real options theory," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 24(4), pages 267-282.
    • Handle: RePEc:wly:mgtdec:v:24:y:2003:i:4:p:267-282
    DOI: 10.1002/mde.1124
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    References listed on IDEAS

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    1. Stulz, ReneM., 1982. "Options on the minimum or the maximum of two risky assets : Analysis and applications," Journal of Financial Economics, Elsevier, vol. 10(2), pages 161-185, July.
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    Cited by:

    1. Jonathan P. O'Brien & Timothy B. Folta, 2009. "A transaction cost perspective on why, how, and when cash impacts firm performance," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(7), pages 465-479.
    2. Andrea Rozsa, 2016. "Development Of Real Option Theory In The Last 20 Years," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 698-709, July.
    3. Darma, Surya & Hakim, Yundi Permadi & Kurniawan A., Erwin & Darma, Dio Caisar & Suparjo, Suparjo, 2022. "Understanding Market Behavior on Corn Commodity: Phenomenon at Year End," Asian Journal of Agriculture and Rural Development, Asian Economic and Social Society (AESS), vol. 12(02), January.
    4. Maley, Jane F. & Moeller, Miriam & Ting, Alina F., 2020. "Sustainable expatriate compensation in an uncertain environment," Journal of International Management, Elsevier, vol. 26(3).
    5. Idrovo Carlier, Sandra & Costamagna, Rodrigo & Mendi, Pedro & Parra, Juan Manuel, 2019. "Low-skilled labor markets as a constraint on business strategy choices: A theoretical approach," Journal of Business Research, Elsevier, vol. 102(C), pages 228-234.
    6. Swinnen, Johan F.M. & Vercammen, James, 2006. "Uncertainty and Specific Investment with Weak Contract Enforcement," 2006 Annual meeting, July 23-26, Long Beach, CA 21044, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    7. Bartolini, Fabio & Gallerani, Vittorio & Viaggi, Davide, 2008. "Ex-Ante Evaluation Of Agri-Environmental Schemes: Combining Elements Of Private And Public Decision Making," 107th Seminar, January 30-February 1, 2008, Sevilla, Spain 6639, European Association of Agricultural Economists.
    8. Han Smit & Enrico Pennings & Sjoerd Bekkum, 2017. "Real options and institutions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 48(5), pages 620-644, July.
    9. Keith D. Brouthers & Lance Eliot Brouthers & Steve Werner, 2008. "Real Options, International Entry Mode Choice and Performance," Journal of Management Studies, Wiley Blackwell, vol. 45(5), pages 936-960, July.
    10. Max Boisot & Ron Sanchez, 2010. "Organization as a Nexus of Rules: Emergence in the Evolution of Systems of Exchange," management revue - Socio-Economic Studies, Nomos Verlagsgesellschaft mbH & Co. KG, vol. 21(4), pages 378-405.
    11. Ilir Hajdini & Josef Windsperger, 2020. "Real options in franchise contracting: an application of transaction cost and real options theory," European Journal of Law and Economics, Springer, vol. 50(2), pages 313-337, October.

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