Edited by Alain Verbeke and Hemant Merchant
Chapter 2: The end of the opportunism versus trust debate: bounded reliability as a new envelope concept in research on MNE governance
Transaction cost economics (TCE) has fast become one of the most influential theories within the social sciences (Carroll and Teece, 1999; Carter and Hodgson, 2006). Its applications in the international business (IB) context have shown its relevance to explaining and predicting a wide variety of IB phenomena, including, inter alia, the existence of MNEs (Buckley and Casson, 1976; Rugman, 1980; Teece, 1981; Hennart, 1982), MNE foreign entry mode decisions and interactions with external parties (Beamish and Banks, 1987; Hennart, 1988; Buckley and Casson, 1998a; Chen, 2005; Hennart, 2009), but also MNE internal governance choices (Hennart, 1993; Verbeke and Kenworthy, 2008). TCE thinking as applied in the IB context (usually referred to as internalization theory or transaction cost internalization – TCI theory) relies heavily on Coase’s (1937) original analysis of the relative costs of external versus internal markets, and parallels to a large extent Williamson’s (1975, 1985, 1996a) development of TCE as a general theory of the firm (Safarian, 2003). However, Williamson’s TCE approach relies heavily on the behavioral assumptions of bounded rationality and opportunism, whereas other TCE- related theories do not appear to require the latter concept (North, 1990). In the IB field, a number of scholars have developed MNE theories that allow for opportunism, but do not assume it is necessarily the decisive factor in governance choices; see, inter alia, Casson’s (2000) information cost perspective and Rugman and Verbeke’s (2003) joint transaction cost and strategic management explanation of internal MNE functioning.
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