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Abstract
This article aims at contributing to the extant literature on government make-or-buy choices building on transaction cost economics (TCE) by explicitly theorizing about transaction alignment and its relation to performance. It is argued that current theoretical and empirical models of government make-or-buy choices are not able to make predictions that corroborate theory. They are dependent upon the assumption of perfect competition that is ill-suited for the public sector setting. Instead, contingent models that take performance differences into account constitute a more valid model of TCE in this setting. In this article, theoretical models and empirical approaches for such a research agenda are developed.
Notes
1 It is assumed that enough selection or congruence exists to form a congruent association line, but that there will also be enough entities above and below the congruent association line to make it possible to find both aligned and misaligned entities that could be related to performance. This notion fits with the concept of bounded rationality. Agents are assumed to strive for alignment, but they are limited in their capabilities of doing so. Some will thus be better aligned than others: by chance, skill or both.
2 The regression line is supposed to proxy the fit line predicted by theory. Deviation from the regression line is then also assumed to be deviation from the fit line.
3 Studying change in governance choices over time (e.g. Hefetz and Warner Citation2004; Lamothe et al. Citation2008) is not the solution since changes are explained without relating change (adaptation) to positive net effects on performance. These studies are still of a congruence and selection view of alignment.