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INTERNATIONAL MARKETING AND MANAGEMENT RESEARCH
SERIES EDITOR: ANSHU SAXENA ARORA
Toward Behavioral
Transaction Cost
Economics
Theoretical Extensions
and an Application to the
Study of MNC Subsidiary
Ownership
George Z. Peng
International Marketing and Management Research
Series Editor
Anshu Saxena Arora
School of Business and Public Administration
University of the District of Columbia
Washington, DC, USA
International Marketing and Management Research (IMMR) Series
provides a forum for academics and professionals to share the latest devel-
opments and advances in knowledge and practice of global business and
international management. The series is a uniquely positioned contribu-
tion of interrelated research papers across all business disciplines including:
marketing, international business, strategy, digital strategy, organizational
behavior and cross-cultural management, international marketing, inter-
national finance, global value chains, global supply chain management,
sustainable innovations, e-business and e-commerce, social media, new
product design and innovation, and business economics. Six volumes have
been published under the IMMR series. Each research paper published
in this series goes through a double-blind peer review process. Through
the series, we examine the impact of cross-cultural issues, characteristics,
and challenges with regard to global and sustainable business innova-
tions; institutional and regulatory factors on international marketing and
management issues; and the effects of institutional changes on global
businesses with regard to both traditional and digital worlds. IMMR
series fosters the exchange of ideas on a range of important international
subjects, provides stimulus for research, and strengthens the develop-
ment of international perspectives. The international perspective is further
enhanced by the geographical spread of the contributors.
Toward Behavioral
Transaction Cost
Economics
Theoretical Extensions and an Application to the
Study of MNC Subsidiary Ownership
George Z. Peng
University of Regina
Regina, SK, Canada
© The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer
Nature Switzerland AG 2021
This work is subject to copyright. All rights are solely and exclusively licensed by the
Publisher, whether the whole or part of the material is concerned, specifically the rights
of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on
microfilms or in any other physical way, and transmission or information storage and
retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology
now known or hereafter developed.
The use of general descriptive names, registered names, trademarks, service marks, etc.
in this publication does not imply, even in the absence of a specific statement, that such
names are exempt from the relevant protective laws and regulations and therefore free for
general use.
The publisher, the authors and the editors are safe to assume that the advice and informa-
tion in this book are believed to be true and accurate at the date of publication. Neither
the publisher nor the authors or the editors give a warranty, expressed or implied, with
respect to the material contained herein or for any errors or omissions that may have been
made. The publisher remains neutral with regard to jurisdictional claims in published maps
and institutional affiliations.
This Palgrave Macmillan imprint is published by the registered company Springer Nature
Switzerland AG
The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland
To my wife Alisha H. Zhang
and my daughters Julia Z. Peng & Joanne Z. Peng
Acknowledgments
vii
viii ACKNOWLEDGMENTS
Index 369
ix
Abbreviations
CD Cultural Distance
CR Critical Realism
NEA National Ethical Attitude
OLI Ownership-Location-Internalization
ROT Real Options Theory
TCE Transaction Cost Economics
VAB Value-Attitude-Behavior
xi
List of Figures
xiii
List of Tables
xv
xvi LIST OF TABLES
1.1 Introduction
Williamson’s (1975, 1985) transaction cost economics (TCE) has estab-
lished itself at the center of organizational economics1 (Groenewegen
1996; Mahoney 2004; Moe 1984) as a dominant lens to view organiza-
tional boundary decisions (Parmigiani 2007; Williamson 1981). Contrary
to the neoclassical theory of the firm as a production function with zero
transaction cost, TCE considers the firm as a governance structure with
positive transaction cost (Williamson 1998). Based on three ‘behavioral’
assumptions (perceived opportunism controllability, bounded rationality,
and risk neutrality)2 and three transaction characteristics (asset specificity,
uncertainty, and transaction frequency), TCE advocates that organiza-
tions choose governance structures (such as MNC subsidiary ownership)
that minimize transaction costs (Williamson 1975, 1985; Zhao et al.
2004). TCE has a broad scope (Rindfleisch and Heide 1997), appli-
cable to any issue that arises as or can be formulated as a contracting
problem (Williamson 1998). Thus, TCE has wielded its influence far
beyond the pales of economics into strategic management and busi-
ness research in general and international business in particular (David
and Han 2004; Hennart 2010; Williamson 2005; Zhao et al. 2004).
Consequently, there exists an awe-inspiring literature (e.g., Macher and
Richman 2008; Martins et al. 2010; Masten 2016; Shelanski and Klein
1995), both in theoretical conceptualization and in empirical testing.
1.3 Characteristics
of Behavioral Theories of the Firm
The large variety of behavioral theories share a common foundation in
ideas of organizational decision-making process and individual bounded
rationality (Gavetti et al. 2012). In order for a theory to be considered as
behavioral, it should meet the following criteria (Cyert and March 1963;
Gavetti et al. 2012; Greve and Argote 2015). While these criteria are
not exhaustive, suffice it to say that they are enough for us to use in the
evaluation of whether TCE is behavioral in Sect. 1.5.
they fail the process part of the definition.9 For example, agency
theory is not behavioral (Greve and Argote 2015).
3. Behavior is goal-oriented (but not goal-driven). This is directly
related to the two criteria above. While goal definition is the
first step in organizational decision-making process (Douma and
Schreuder 1992: 66), a behavioral theory should tolerate goal
ambiguity (Dew et al. 2008). The ‘goal’ in Cyert and March
(1963) was developed based on a political conception in order to
explain the behavior of established firms within well-defined envi-
ronments (Augier and Sarasvathy 2004; Dew et al. 2008). Behavior
based on such a conceptualization of goal is more administrative
than ‘behavioral’, by which we mean behavior affected by human
psychology. From a behavioral theory perspective, goals are not
necessarily defined a priori but rather they emerge within orga-
nizational action processes (Dew et al. 2008; Joas and Beckert
2001). [This is to say goals should be understood in the sense of
judgmental rationality of in critical realism (CR) (see Chapter 2)].
4. More accurately speaking, a behavioral theory should focus on
effectuation rather than prediction (Dew et al. 2008; Karami
2020), since the former is based on a goal-oriented but means-
driven logic (Sarasvathy and Simon 2000; Sarasvathy 2001,
2003).10,11 Effectuation is an evolutionary approach associated
with goal adjustment based on performance feedback and ecolog-
ical rationality and is particularly relevant to situations with high
uncertainty. In effectuation, goal-setting is a process based on
initial prereflective aspirations that operate in the action situation
in an iterative manner, rather than takes place as a cognitive act
prior to action based on prediction (Joas and Beckert 2001: 273).
For this, psychological processes have to be moved to the front
seat. At the beginning of an action process, organizations have
to effectuate based on available means because goals are mostly
vaguely understood. Goals become more specific once organiza-
tions have a better sense of the possible means to achieve the ends,
and even new goals will emerge on the basis of newly available
and understood means. The more concrete understanding of goals
or their changes will in turn shape new perspective on available
means. Because this reflective and iterative process between ends
Another random document with
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When he was dying Captain Hardy came down, with tidings of the
victory being certain. Dr. Beatty says, “Lord Nelson and Captain
Hardy shook hands, and the Captain congratulated him, even in the
arms of death, upon the brilliant victory, which he said was complete,
although he did not know how many ships were captured; certainly
fourteen or fifteen. Nelson said, ‘That is well, but I bargained for
twenty,’ and then emphatically exclaimed, ‘Anchor, Hardy, anchor!’ ‘I
suppose, my Lord, Admiral Collingwood will now take upon himself
the direction of affairs.’ ‘Not while I live, I hope, Hardy!’ cried Nelson;
‘No, do you anchor, Hardy.’ Captain Hardy then said, ‘Shall we make
the signal, sir?’ ‘Yes,’ answered Nelson, ‘for if I live, I’ll anchor.’”
In about fifteen minutes Lord Nelson became speechless, and
died at half-past four. His best and truest friends only regretted that
he had not died instantly, on the quarter-deck, when he was
wounded.
All nations have done justice to Nelson’s character, and a
celebrated French writer says, he “ought to be held up as a model to
Admirals, both for the extraordinary pains he took to know his
Admirals and Captains, and by the spirit of the attacks which he
resolved to undertake. He unfolded to them his general plan of
operations, and the modifications with which the weather or the
manœuvres of the enemy might force him to qualify his original
determination.
“When once he had explained his system to the superior officers
of his fleet, he confided to them the charge of acting according to
circumstances, so as to lead, in the most favorable manner, to the
consummation of the enterprise so planned. And Nelson, who was
allowed to choose the companions of his glory, possessed the talent
and the happiness to find men worthy of his instruction and
confidence. They learned, in action, to supply what had escaped his
forethought, and in success to surpass even his hopes.”
The immediate result of the Battle of Trafalgar was seventeen
French and Spanish ships-of-the-line captured, and one French ship
burnt. Four French ships effected their escape to the southward; and
Admiral Gravina, with eleven French and Spanish ships-of-the-line,
and the smaller vessels, anchored under Rota, in the course of the
succeeding night.
At six p. m. Vice-Admiral Collingwood, now Commander-in-Chief,
shifted his flag to the Euryalus frigate, and the latter, taking the Royal
Sovereign in tow, stood off shore with her.
Most of the British ships were so damaged, either in spars or hull,
that they were not in a condition to carry sail.
Of seventeen prizes, eight were wholly dismasted, the remainder
partly so. Some were nearly in a sinking condition.
To add to their perilous condition, they were then in thirteen
fathoms of water, with the shoals of Trafalgar only a few miles to
leeward. Fortunately the wind, which was west-south-west, and dead
on shore, was moderate; but there was a high swell, which was bad
for wounded masts. At nine p. m. the Vice-Admiral made the signal to
anchor, but few could do so, as many cables were cut by shot. At
midnight the wind veered to south-south-west, and freshened, and
signals were made to those under way to wear, with heads to the
westward. Four of the dismasted prizes anchored off Cape Trafalgar,
and the rest wore, and drifted seaward. Next morning Collingwood
issued a general order of thanks to the fleet.
There was then a fresh southerly wind; but thirteen of the prizes,
which had remained under way, were got hold of, and towed to the
westward. But at five o’clock that afternoon it was found that the
Redoutable was sinking, which she did, with many French prisoners
and her prize crew on board. Some were saved on a raft, but many
were lost. Other fearful casualties occurred during the rough weather
of the succeeding night. The Fougueux was lost, with all on board
but twenty-five; and the Algésiras was given up to the prisoners, who
carried her into Cadiz. The Bucentaure was wrecked, but her crew
was saved.
A heavy gale continued, and on the 23d the French Captain,
Cosmao-Kerjulien, with five ships and five frigates, recaptured two of
the prizes, which were drifting about. But in doing so one of his own
ships, the Indomptable, a fine eighty-gun vessel, was wrecked, with
all on board lost; and the Spanish ship St. Francis d’Assis was lost,
with most of her crew. Other casualties occurred.
Altogether, of the ships captured by the British, at the end of the
operations only four—one French and three Spanish 74’s—remained
as trophies in the hands of the conquerors. Nor was one of them
worth the pains and risk taken to preserve her. The Victory, towed by
the Neptune, arrived at Gibraltar on the 28th of October, and on the
3d of November, having been partially refitted, she sailed for
England—having Nelson’s body, preserved in spirits, on board. At
Chatham the Admiralty yacht received the coffin, which was made of
the main-mast of the French flag-ship Orient, which was burnt at the
battle of the Nile—and which had been presented to Nelson by
Captain Hallowell. This was placed in a leaden coffin; and his flag,
which had been kept at half-mast on board the Victory, was struck for
the last time.
His body, thus encoffined, lay in state at Greenwich Hospital; and
on the 9th of January, 1806, was buried, with great pomp, in St.
Paul’s Cathedral.
Lord Nelson was engaged in action with an enemy over one
hundred and twenty times, and besides being severely wounded
elsewhere, lost his right eye and his right arm.
He had not long passed his forty-seventh birthday when he was
killed.
His brother William was made an Earl, with £6000 per annum and
£100,000 for the purchase of an estate; while £10,000 pounds were
given to each of his sisters.
It was also decided that two ships should be built; one of one
hundred and twenty guns, to be called the Nelson; and one of ninety-
eight guns, to be called the Trafalgar. Collingwood was made a
Baron, and voted £2000 per annum; and, of course, there were a
very large number of minor promotions.
LORD EXMOUTH AT ALGIERS. A. D. 1816.