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

Sophia Ruester ()

No 2010/18, RSCAS Working Papers from European University Institute

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.

Keywords: Inter-organizational trust; liquefied natural gas; shift parameter; transaction cost economics; vertical integration (search for similar items in EconPapers)
Date: 2010-01-29
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Citations: View citations in EconPapers (2)

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