Critics of transaction cost economics (TCE) argue that TCE is not able to
explain variations in governance arrangements between the extremes of market
and hierarchy. They further dispute the assumptions of opportunism and
risk neutrality underlying the theory. While TCE proponents have developed
approaches that address each of these criticisms separately, we propose that
combining the approaches to simultaneously address both challenges alters
the nature of the predictions. We explore the roles of risk propensity and trust
within a TCE framework. We then test the ability of these variables to predict
variations in governance between the extremes of market and hierarchy.
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