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Inter-Organizational Trust as a Shift Parameter in the Extended Transaction Cost Framework: A first Application to the LNG Industry

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  • Sophia Ruester

Abstract

This paper provides an empirical analysis examining the effect of both transaction characteristics and the institutional environment on governance choice. Using a dataset of 237 corporate-specific value chains in the global LNG industry, we introduce inter-organizational trust as a shift parameter. Following transaction cost economics, it is hypothesized that specific investments under uncertainty provide incentives to integrate vertically. Second, it is argued that inter-organizational trust changes the relative costs of vertical integration and non-integration and supports less hierarchical organizational structures. These economic relationships are tested based on probit and ordered probit models. Estimation results provide broad support for both propositions.

Suggested Citation

  • Sophia Ruester, 2010. "Inter-Organizational Trust as a Shift Parameter in the Extended Transaction Cost Framework: A first Application to the LNG Industry," RSCAS Working Papers 2010/18, European University Institute.
    • Handle: RePEc:rsc:rsceui:2010/18
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    References listed on IDEAS

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    Cited by:

    1. Anne Neumann & Sophia Rüster & Christian von Hirschhausen, 2015. "Long-Term Contracts in the Natural Gas Industry: Literature Survey and Data on 426 Contracts (1965-2014)," Data Documentation 77, DIW Berlin, German Institute for Economic Research.
    2. Bernhard Eicher, 2016. "Selection of asset investment models by hospitals: examination of influencing factors, using Switzerland as an example," International Journal of Health Planning and Management, Wiley Blackwell, vol. 31(4), pages 554-579, October.

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