Use of Transaction Cost Economics to Study Information Technology Outsourcing: Over-Application or Under-Theorizing?

Sprouts: Working Papers on Information Environments, Systems and Organizations

16 Pages Posted: 24 Feb 2006

See all articles by Pankaj Nagpal

Pankaj Nagpal

Arkansas State University; Case Western Reserve University

Date Written: 2004

Abstract

IS discipline has witnessed significant growth in research on IT in- and out-sourcing. Economic theories inform a large portion of this work. This paper examines the use of Transaction Cost Economics (TCE) as a theoretical lens to study IT sourcing decisions (internal vs. external). It reviews TCE's major assumptions and assesses its key constructs: frequency, asset specificity, opportunism, and uncertainty, with regard to how they have been operationalized and what results have been obtained. This is done through a review of selected body of outsourcing literature. There is evidence of the impacts of production costs on outsourcing decisions, while findings with regard to transaction costs are inconclusive. In order to move the research agenda ahead we suggest examining the co-evolution of drivers for buyers and vendors to outsource, instead of just exploring cost determinants. We recommend that researchers take a longitudinal process perspective to improve our understanding of complex governance phenomena.

Keywords: Outsourcing, Sourcing, Transaction cost economics

JEL Classification: L11, L22, D23

Suggested Citation

Nagpal, Pankaj, Use of Transaction Cost Economics to Study Information Technology Outsourcing: Over-Application or Under-Theorizing? (2004). Sprouts: Working Papers on Information Environments, Systems and Organizations, Available at SSRN: https://ssrn.com/abstract=882863 or http://dx.doi.org/10.2139/ssrn.882863

Pankaj Nagpal (Contact Author)

Arkansas State University ( email )

2713 Pawnee
P.O. Box 1750
Jonesboro, AR 72467-115
United States

Case Western Reserve University ( email )

10900 Euclid Ave.
Cleveland, OH 44106-7235
United States

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