Contracting Beyond the Market

Kate Odziemkowska () and Sinziana Dorobantu ()
Additional contact information
Kate Odziemkowska: Strategy and Environment Area, Jones Graduate School of Business, Rice University, Houston, Texas 77005
Sinziana Dorobantu: Management and Organizations Department, Leonard N. Stern School of Business, New York University, New York, New York 10012

Organization Science, 2021, vol. 32, issue 3, 776-803

Abstract: Despite growing engagements between firms and nonmarket stakeholders—such as local communities and nongovernmental organizations —research has yet to examine the emergence of formal contracts between them. Given that a very large number of such contracts are theoretically possible but only a small number exist, we seek to understand what factors explain the use of contracts to govern some relationships between firms and nonmarket stakeholders but not others. We draw on transaction cost economics to study transactions wherein a nonmarket stakeholder provides a firm access to a valuable resource and to understand when these transactions are governed by formal contracts. We propose that, when a firm makes site-specific investments, a stakeholder’s use rights to the resource sought by the firm, the negative externalities generated by its use, and the stakeholder’s capacity for collective mobilization increase holdup risk for the firm and therefore the probability of a contract. We collect novel data on the location of indigenous communities and mines in Canada to identify a plausible exhaustive set of indigenous communities “at risk” of signing a contract with a mining firm. We test our hypotheses by relying, respectively, on historically assigned property rights over lands, the mine-community colocation in a watershed and proximity on transportation routes, and archival records of community mobilization events. We find support for our propositions by examining which of the 5,342 dyads formed by 459 indigenous communities and 98 firms signed 259 contracts between 1999 and 2013.

Keywords: contracts; externalities; nonmarket strategy; stakeholders; transaction costs (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://dx.doi.org/10.1287/orsc.2020.1388 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ororsc:v:32:y:2021:i:3:p:776-803

Access Statistics for this article

More articles in Organization Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().