Contractual Flexibility, Rent Seeking, and Renegotiation Design: An Empirical Analysis of Information Technology Outsourcing Contracts

Published Online:https://doi.org/10.1287/mnsc.1110.1493

References

  • Aghion P., Dewatripont M., Rey P. Renegotiation design with unverifiable information. Econometrica (1994) 62(2):257–282CrossrefGoogle Scholar
  • Anderson S. W., Dekker H. C. Management control for market transactions. Management Sci. (2005) 51(12):1734–52LinkGoogle Scholar
  • Angrist J., Krueger A. Does compulsory school attendance affect schooling and earnings? Quart. J. Econom. (1991) 106(4):979–1014CrossrefGoogle Scholar
  • Bahli B., Rivard S., Storey V. C., Sarkar S., DeGross J. I. An assessment of information technology outsourcing risk. Proc. Internat. Conf. Inform. Systems (ICIS 2001) (2001) (Association for Information Systems, Atlanta) Google Scholar
  • Bajari P., Tadelis S. Incentives versus transaction costs: A theory of procurement contracts. RAND J. Econom. (2001) 32(3):387–407CrossrefGoogle Scholar
  • Bajari P., Houghton S., Tadelis S. Bidding for incomplete contracts: An empirical analysis. (2011) . Mimeo, University of California, Berkeley, BerkeleyGoogle Scholar
  • Banerjee A. V., Duflo E. Reputation effects and the limits of contracting: A study of the Indian software industry. Quart. J. Econom. (2000) 115(3):989–1017CrossrefGoogle Scholar
  • Banker R. D., Slaughter S. A. The moderating effects of structure on volatility and complexity in software enhancement. Inform. Systems Res. (2000) 11(3):219–240LinkGoogle Scholar
  • Barry E., Mukhopadhyay T., Slaughter S. Software project duration and effort: An empirical study. Inform. Tech. Management (2002) 3(1–2):113–136CrossrefGoogle Scholar
  • Barthélemy J. The hidden costs of IT outsourcing. MIT Sloan Management Rev. (2001) 42(3):60–69Google Scholar
  • Benmelech E., Bergman N. K. Liquidation values and the credibility of financial contract renegotiation: Evidence from U.S. airlines. Quart. J. Econom. (2008) 123(4):1635–1677CrossrefGoogle Scholar
  • Brynjolfsson E., Hitt L. M. Beyond computation: Information technology, organizational transformation and business performance. J. Econom. Perspect. (2000) 14(4):23–48CrossrefGoogle Scholar
  • Cameron C., Gelbach J., Miller D. Robust inference with multi-way clustering. J. Bus. Econom. Statist. (2011) 29(2):238–249CrossrefGoogle Scholar
  • Cappellari L., Jenkins S. P. Calculation of multivariate normal probabilities by simulation, with applications to maximum simulated likelihood estimation. Stata J. (2006) 6(2):156–189CrossrefGoogle Scholar
  • Chen Y., Bharadwaj A. An empirical analysis of IT outsourcing contract structures. Inform. Systems Res. (2009) 20(4):484–506LinkGoogle Scholar
  • Chiappori P. A., Salanie B., Dewatripont M., Hansen L., Turnovsky P. Testing contract theory: A survey of some recent work. Advances in Economics and Econometrics: Theory and Application (2003) (Cambridge University Press, Cambridge, UK) 115–149Eighth World CongressCrossrefGoogle Scholar
  • Crocker K. J., Masten S. E. Pretia ex machina? Prices and process in long-term contracts. J. Law Econom. (1991) 34(1):69–99CrossrefGoogle Scholar
  • Dahlstrom R., Nygaard A. An empirical investigation of ex post transaction costs in franchised distribution channels. J. Marketing Res. (1999) 36(2):160–170CrossrefGoogle Scholar
  • Deloitte Consulting Calling a change in the outsourcing market. (2005) . White paper, Deloitte.com, http://www.deloitte.com/assets/Dcom-Luxembourg/Local%20Assets/Documents/Global_brochures/us_outsourcing_callingachange.pdfGoogle Scholar
  • Dye A. Avoiding holdup: Asset specificity and technical change in the Cuban sugar industry, 1899–1929. J. Econom. Hist. (1994) 54(3):628–653CrossrefGoogle Scholar
  • Edlin A. S., Reichelstein S. Holdups, standard breach remedies, and optimal investment. Amer. Econom. Rev. (1996) 86(3):478–501Google Scholar
  • Eggleston K., Posner E., Zeckhauser R. The design and interpretation of contracts: Why complexity matters. Northwestern Univ. Law Rev. (2000) 95(1):91–132Google Scholar
  • Fehr E., Hart O., Zehnder C. Contracts as reference points—Experimental evidence. Amer. Econom. Rev. (2011) 101(2):493–525CrossrefGoogle Scholar
  • Pohlmann T., McNeill R., Roehrig P., Powers L., Ester O.Forrester Research The Forrester wave™: Integrated desktop and service desk outsourcing. (2006) . Research Briefing, March 9. Retrieved July 2011, http://www.forrester.com/Google Scholar
  • Geweke J. Bayesian inference in econometric models using Monte Carlo integration. Econometrica (1989) 57:1317–1339CrossrefGoogle Scholar
  • Ghosh M., John G. Governance value analysis and marketing strategy. J. Marketing (1999) 63:131–145CrossrefGoogle Scholar
  • Gibbons R. Four formal(izable) theories of the firm? J. Econom. Behav. Organ. (2005) 58(2):200–245CrossrefGoogle Scholar
  • Giera J., Parker A. Adaptive sourcing: Outsourcing's new paradigm. (2006) . White paper, Forrester Research. http://cdn.ttgtmedia.com/rms/computerweekly/DowntimePDF/pdf/Adaptive%20Sourcing.pdfGoogle Scholar
  • Goldberg V., Erickson J. Quantity and price adjustment in long-term contracts: A case study of petroleum Coke. J. Law Econom. (1987) 30:369–398CrossrefGoogle Scholar
  • Goo J., Kishore R., Nam K., Rao H. R. The role of service level agreements in relational management of IT outsourcing: An empirical study. MIS Quart. (2009) 33(1):119–145CrossrefGoogle Scholar
  • Greene W. H.Econometric Analysis (2000) 4th ed.(Prentice Hall, Upper Saddle River, NJ) Google Scholar
  • Grossman S. J., Hart O. D. The costs and benefits of ownership: A theory of vertical and lateral integration. J. Political Econom. (1986) 94(4):691–719CrossrefGoogle Scholar
  • Guasch J. L., Laffont J.-J., Straub S. Concessions of infrastructure in Latin America: Government-led renegotiation. J. Appl. Econom. (2007) 22(7):1267–1294CrossrefGoogle Scholar
  • Guasch J. L., Laffont J.-J., Straub S. Renegotiation of concession contracts in Latin America: Evidence from the water and transport sectors. Internat. J. Indust. Organ. (2008) 26(2):421–442CrossrefGoogle Scholar
  • Gulati R., Lawrence P., Puranam P. Adaptation in vertical relationships: Beyond incentive conflict. Strategic Management J. (2005) 26(5):415–440CrossrefGoogle Scholar
  • Gurbaxani V., Karmarkar U., Apte U. Information systems outsourcing contracts: Theory and evidence. Managing in the Information Economy: Current Research (2007) (Kluwer, New York) 83–115CrossrefGoogle Scholar
  • Hajivassiliou V., McFadden D. The method of simulated scores for the estimation of LDV models. Econometrica (1998) 66(4):863–896CrossrefGoogle Scholar
  • Han K., Kauffman R. J., Nault B. R. Returns to information technology outsourcing. Inform. Systems Res. (2011) 22(4):824–840LinkGoogle Scholar
  • Hart O., Moore J. Property rights and the nature of the firm. J. Political Econom. (1990) 98(6):1119–1158CrossrefGoogle Scholar
  • Hart O., Moore J. Foundations of incomplete contracts. Rev. Econom. Stud. (1999) 66(1):115–138CrossrefGoogle Scholar
  • Harter D., Krishnan M., Slaughter S. Effects of process maturity on quality, cost and cycle time in software product development. Management Sci. (2000) 46(4):451–466LinkGoogle Scholar
  • Heide J. B., Wathne K. H., Rokkan A. I. Interfirm monitoring, social contracts and relationship outcomes. J. Marketing Res. (2007) 44(3):425–433CrossrefGoogle Scholar
  • Huntley H. Assess four factors before renegotiating outsourcing contracts. (2008) . White paper, Gartner Research, August 28. Retrieved July 2011, http://www.gartner.com/id=748825Google Scholar
  • Joskow P. L. Contract duration and relationship-specific investments: Empirical evidence from coal markets. Amer. Econom. Rev. (1987) 77(1):168–185Google Scholar
  • Joskow P. L. Price adjustment in long-term contracts: The case of coal. J. Law Econom. (1988) 31(1):47–83CrossrefGoogle Scholar
  • Katz A. W. Contractual incompleteness: A transactional perspective. Case Western Reserve Law Rev. (2005) 56(1):169–186Google Scholar
  • Keane M. P. A computationally practical simulation estimator for panel data. Econometrica (1994) 62(1):95–116CrossrefGoogle Scholar
  • Klein B. Why hold-ups occur: The self-enforcing range of contracts. Econom. Inquiry (1996) 34(3):444–463CrossrefGoogle Scholar
  • Klein B., Crawford R. A., Alchian A. A. Vertical integration, appropriable rents, and the competitive contracting process. J. Law Econom. (1978) 21(2):297–326CrossrefGoogle Scholar
  • Koh C., Ang S., Straub D. W. IT outsourcing success: A psychological contract perspective. Inform. Systems Res. (2004) 15(4):356–373LinkGoogle Scholar
  • Lacity M., Willcocks L. Practices in information technology outsourcing: Lessons from experience. MIS Quart. (1998) 22(3):363–408CrossrefGoogle Scholar
  • Laffont J.-J., Tirole J.A Theory of Incentives in Procurement and Regulation (1993) (MIT Press, Cambridge, MA) Google Scholar
  • Lee J. N., Miranda S. M., Kim Y. G. IT outsourcing strategies: Universalistic, contingency, and configurational explanations of success. Inform. Systems Res. (2004) 15(2):110–131LinkGoogle Scholar
  • Lerner J., Merges R. P. The control of technology alliances: An empirical investigation. J. Indust. Econom. (1998) 46(2):125–156CrossrefGoogle Scholar
  • Lerner J., Malmendier U. Contractibility and the design of research agreements. Amer. Econom. Rev. (2010) 100(1):214–246CrossrefGoogle Scholar
  • Levina N., Ross J. W. From the vendor's perspective: Exploring the value proposition in information technology outsourcing. MIS Quart. (2003) 27(3):331–364CrossrefGoogle Scholar
  • Lichtenstein Y. Puzzles in software development contracting. Comm. ACM (2004) 47(2):61–65CrossrefGoogle Scholar
  • Linder J. C. Transformational outsourcing. MIT Sloan Management Rev. (2004) 45(2):52–58Google Scholar
  • Linder J. C., Jarvenpaa S., Davenport T. H. Toward an innovation sourcing strategy. MIT Sloan Management Rev. (2003) 44(4):43–49Google Scholar
  • MacLeod W. B., Malcomson J. M. Investments, hold-up, and the form of market contracts. Amer. Econom. Rev. (1993) 83(4):811–837Google Scholar
  • Masten S. E. Equity, opportunism, and the design of contractual relations. J. Institutional Theoret. Econom. (1988) 144:180–195Google Scholar
  • Masten S. E. Long-term contracts and short-term commitment: Price determination for heterogeneous freight transactions. Amer. Law Econom. Rev. (2009) 11(1):79–111CrossrefGoogle Scholar
  • Masten S. E., Crocker K. Efficient adaptation in long-term contracts: Take-or-pay provisions for natural gas. Amer. Econom. Rev. (1985) 75(5):1083–1093Google Scholar
  • Masten S., Saussier S., Brousseau E., Glachant J. M. Econometrics of contracts. The Economics of Contracts (2002) (Cambridge University Press, Cambridge, UK) 273–292CrossrefGoogle Scholar
  • Mayer K. J. Spillovers and governance: An analysis of knowledge and reputational spillovers in information technology. Acad. Management J. (2006) 49(1):69–84CrossrefGoogle Scholar
  • Mayer K. J., Argyers N. S. Learning to contract: Evidence from the personal computer industry. Organ. Sci. (2004) 15(4):394–410LinkGoogle Scholar
  • Miozzo M., Grimshaw D. Modularity and innovation in knowledge-intensive business services: IT outsourcing in Germany and the UK. Res. Policy (2005) 34(9):1419–1439CrossrefGoogle Scholar
  • Mok L. Leading IT organization change: Moving beyond change management. (2004) . White paper, Gartner Research, October 1. Retrieved July 2011, http://www.gartner.com/id=1489666Google Scholar
  • Novak S., Stern S. Complementarity among vertical integration decisions: Evidence from automobile product development. Management Sci. (2009) 55(2):311–332LinkGoogle Scholar
  • Petersen M. A. Estimating standard errors in finance panel data sets: Comparing approaches. Rev. Financial Stud. (2009) 22(1):435–480CrossrefGoogle Scholar
  • Poppo L., Zenger T. Testing alternative theories of the firm: Transaction cost, knowledge-based, and measurement explanations for make-or-buy decisions. Strategic Management J. (1998) 19(9):853–877CrossrefGoogle Scholar
  • Rajan R., Zingales L. G. Power in a theory of the firm. Quart. J. Econom. (1998) 113(2):387–432CrossrefGoogle Scholar
  • Ridder F. Six ways to build flexibility into outsourcing contracts. (2008) . White paper, Gartner Research, May 14. Retrieved July 2011, http://www.gartner.com/id=669810Google Scholar
  • Rivers D., Vuong Q. Limited information estimators and exogeneity tests for simultaneous probit models. J. Econometrics (1988) 39(3):347–366CrossrefGoogle Scholar
  • Roberts M. J., Sufi A. Renegotiation of financial contracts: Evidence from private credit agreements. J. Financial Econom. (2009) 93(2):159–184CrossrefGoogle Scholar
  • Rogerson W. P. Efficient reliance and damage measures for breach of contract. RAND J. Econom. (1984) 15(1):39–53CrossrefGoogle Scholar
  • Rokkan A. I., Heide J. B., Wathne K. H. Specific investments in marketing relationships: Expropriation and bonding effects. J. Marketing Res. (2003) 40(2):210–224CrossrefGoogle Scholar
  • Ryall M. D., Sampson R. Repeated interaction and contract structure: Evidence from technology development contracts. Management Sci. (2009) 55(6):906–925LinkGoogle Scholar
  • Schwartz A., Watson J. The law and economics of costly contracting. J. Law, Econom., Organ. (2004) 20(1):2–31CrossrefGoogle Scholar
  • Segal I. Complexity and renegotiation: A foundation for incomplete contracts. Rev. Econom. Stud. (1999) 66(1):57–82CrossrefGoogle Scholar
  • Shavell S. The design of contracts and remedies for breach. Quart. J. Econom. (1984) 99(1):121–148CrossrefGoogle Scholar
  • Susarla A., Barua A., Whinston A. B. A transaction cost perspective of the software as a service business model. J. Management Inform. Systems (2009) 26(2):205–240CrossrefGoogle Scholar
  • Susarla A., Subramanyam R., Karhade P. Contractual provisions to mitigate holdup: Evidence from information technology outsourcing. Inform. Systems Res. (2010) 21(1):37–55LinkGoogle Scholar
  • Technology Partners International Restructuring outsourcing agreements. (2007) . Report, http://www.tpi.net/pdf/researchreports/Restructuring_ResearchReport%20Jan_24_07.pdfGoogle Scholar
  • Tirole J. Incomplete contracts: Where do we stand? Econometrica (1999) 67(4):741–781CrossrefGoogle Scholar
  • Wathne K. H., Heide J. B. Opportunism in interfirm relationships: Forms, outcomes, and solutions. J. Marketing Res. (2000) 64(4):36–51CrossrefGoogle Scholar
  • Watts R., Zimmerman J. L. Agency problems, auditing, and the theory of the firm: Some evidence. J. Law Econom. (1983) 26(3):613–634CrossrefGoogle Scholar
  • Whang S. Contracting for software development. Management Sci. (1992) 38(3):307–325LinkGoogle Scholar
  • Whinston M. D. Assessing property rights and transaction-cost theories of firm scope. Amer. Econom. Rev. (2001) 91(2):184–188CrossrefGoogle Scholar
  • White H. A heteroskedasticity-consistent covariance matrix estimator and a direct test for heteroskedasticity. Econometrica (1980) 48(4):817–838CrossrefGoogle Scholar
  • Williamson O. E. Transaction cost economics: The governance of contractual relations. J. Law Econom. (1979) 22(2):233–261CrossrefGoogle Scholar
  • Williamson O. E.The Economic Institutions of Capitalism (1985) (Free Press, New York) Google Scholar
  • Williamson O. E. The economics of governance. Amer. Econom. Rev. (2005) 95(2):1–18CrossrefGoogle Scholar
  • Willcocks L., Feeny D. IT outsourcing and core IS capabilities: Challenges and lessons at dupont. Inform. Systems Management (2006) 23(1):49–56CrossrefGoogle Scholar
  • Wooldridge J. M.Econometric Analysis of Cross Section and Panel Data (2002) (MIT Press, Cambridge, MA) Google Scholar
  • Young A. Outsourcing market view: What the future holds. (2004) . White paper, Gartner Research, June 9. Retrieved July 2011, http://www.gartner.com/id=450815Google Scholar
INFORMS site uses cookies to store information on your computer. Some are essential to make our site work; Others help us improve the user experience. By using this site, you consent to the placement of these cookies. Please read our Privacy Statement to learn more.