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

Laura Onofri

Journal of Applied Economics, 2008, vol. 11, issue 2, 355-372

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.

Date: 2008
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://hdl.handle.net/10.1080/15140326.2008.12040511 (text/html)
Access to full text is restricted to subscribers.

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:taf:recsxx:v:11:y:2008:i:2:p:355-372

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/recs20

DOI: 10.1080/15140326.2008.12040511

Access Statistics for this article

Journal of Applied Economics is currently edited by Jorge M. Streb

More articles in Journal of Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().