Contracting Beyond the Market

Organization Science, Forthcoming

51 Pages Posted: 1 Jun 2020

See all articles by Kate Odziemkowska

Kate Odziemkowska

Rice University - Jesse H. Jones Graduate School of Business

Sinziana Dorobantu

New York University (NYU) - Leonard N. Stern School of Business

Date Written: May 2, 2020

Abstract

Despite growing engagements between firms and non-market stakeholders — such as local communities and nongovernmental organizations — research has yet to examine the emergence of formal contracts between them. Given that a very large number of such contracts are theoretically possible but only a small number exist, we seek to understand what factors explain the use of contracts to govern some relationships between firms and non-market stakeholders but not others. We draw on transaction cost economics (TCE) to study transactions wherein a non-market stakeholder provides a firm access to a valuable resource and to understand when these transactions are governed by formal contracts. We propose that, when a firm makes site-specific investments, a stakeholder’s use rights to the resource sought by the firm, the negative externalities generated by its use, and the stakeholder’s capacity for collective mobilization, increase holdup risk for the firm and therefore the probability of a contract. We collect novel data on the location of indigenous communities and mines in Canada to identify a plausible exhaustive set of indigenous communities “at risk” of signing a contract with a mining firm. We test our hypotheses by relying, respectively, on historically assigned property rights over lands, the mine-community co location in a watershed and proximity on transportation routes, and archival records of community mobilization events. We find support for our propositions by examining which of the 5,342 dyads formed by 459 indigenous communities and 98 firms signed 259 contracts between 1999 and 2013.

Keywords: Contracts, Externalities, Nonmarket Strategy, Stakeholders, Transaction Costs

Suggested Citation

Odziemkowska, Kate and Dorobantu, Sinziana, Contracting Beyond the Market (May 2, 2020). Organization Science, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3591227 or http://dx.doi.org/10.2139/ssrn.3591227

Kate Odziemkowska (Contact Author)

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

Sinziana Dorobantu

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

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