Transaction Costs and Risk Preferences: Modeling Governance in Offshore Drilling

摘要

This research examines oil companies’ decision to vertically integrate intothe drilling function within a transaction cost economics framework. Riskpreference is also investigated as an explanation for organizational choice.Econometric models are specified and estimated for organizational choice and forthe underlying cost functions of competing organizational forms. Estimation ofthe cost functions permits isolation of the effects of transaction attributes to eachform of organization, shedding light on the relative impacts of hazards ofexchange and internal costs. Results provide support for both the transaction costand risk preference hypotheses as determinants of organizational form. The costfunctions also enable estimation of the incentive gains of outsourcing and theavoided transaction costs due to organizing activities internally.