Property rights theory, transaction costs theory, and agency theory: an organizational economics approach to strategic management

Abstract

Property rights theory has common antecedents with contractual theories of the firm such as transaction costs and agency theories, and is yet distinct from these theories. We illustrate fundamental theoretical principles derived from these three theories by analyzing the business case of oil field unitization. Theoretical principles and application of theory to oil field unitization are each summarized. From this, it is possible to see how property rights theory is well suited to explain business situations where inefficient economic outcomes persist. Additionally, property rights theory forges new theoretical connections with other branches of organizational economics, in particular, resource-based theory.

Firm‐specific knowledge resources and competitive advantage: the roles of economic‐ and relationship‐based employee governance mechanisms

“…Although firm-specific knowledge resources are a potential source of a firm's superior economic performance, if employees' concerns for holdup by the firm lead to a tendency for underinvestment in firm-specific human capital, the firm's actual economic performance may diverge substantially from its potential (Kim and Mahoney, 2005). Thus, both explicit and implicit governance mechanisms, such as employee stock ownership and firm-employee relationships, can be important in influencing the performance impact of firm-specific knowledge (Gottschalg and Zollo, 2007;Wang and Barney, 2006).…”

“…The governance of employees who deploy such knowledge in the value creating process moderates the de facto rents generated by the firm. Indeed, the next generation of resourcebased theory needs to place more emphasis on the logic that a firm's resource base and the effectiveness of its governance system jointly influence its economic performance (Gottschalg and Zollo, 2007;Kim and Mahoney, 2005;Makadok, 2003). 1267 1993).…”

The role of incentives and communication in strategic alliances: an experimental investigation

“…All three organizational economics theories hypothesize that it is necessary for the economic incentives to be right in order to attain efficient outcomes (Argyres and Liebeskind, 1998;Kim and Mahoney, 2005). Since our framework later also examines the role of bounded rationality, it is within the camp of incomplete contracting (e.g., transaction costs and property rights theory) (Coase, 1960;Libecap, 1989;Williamson, 1996) and not the complete contracting principal-agent model (Holmstrom, 1982).…”

“…In particular, friction in establishing property rights helps to explain and predict why there can be large and persistent economic gaps between potential and realized value creation (Kim and Mahoney, 2005;Mahoney 2005). Property rights theory emphasizes 'getting the economic incentives right' (Kim and Mahoney, 2005: 233).…”

Competitive Strategy and Performance in Mexico, Peru, and the United States

“…By incorporating transaction costs, agency theory, and other corporate governance concerns into the analysis, scholars are expanding the boundaries of the competitive strategy field (Boxall & Gilbert, 2007). Organizational economics therefore offers the potential for an integrative, comprehensive framework for understanding strategies in organizations (Kim & Mahoney, 2005).…”