The Influence of Institutional Constraints on Outsourcing

ABSTRACT Drawing on transaction cost economics and institutional theory we argue that the effects of institutional constraints on the transaction costs of outsourcing vary systematically with the type of service outsourced and the ownership structure of the outsourcing firm. Using data from hospitals, we demonstrate that these effects lead to a higher extent of outsourcing of nonclinical compared to clinical services, and larger outsourcing response of nonclinical services to cost pressures from managed care. Further, the effects of ownership structure and associated governance mechanisms on institutional constraints are reflected in the empirical results as cross-sectional variations in the extent to which outsourcing is invoked as a response to cost pressures by hospitals of different ownership. Copyright (c), University of Chicago on behalf of the Accounting Research Center, 2010.

[1]  Benjamin E. Hermalin,et al.  Governance, performance objectives and organizational form: Evidence from hospitals , 2004 .

[2]  Joseph T. Mahoney.  Economic Foundations of Strategy , 2004 .

[3]  Madhav V. Rajan,et al.  Incentive issues in inter-firm relationships , 2002 .

[4]  Madhav V. Rajan,et al.  The Role of Information and Opportunism in the Choice of Buyer‐Supplier Relationships , 2002 .

[5]  A. Hoffman.  Linking Organizational and Field-Level Analyses , 2001 .

[6]  R. Coase.  The Institutional Structure of Production , 1992 .

[7]  W. Richard Scott,et al.  Institutional Change and Healthcare Organizations: From Professional Dominance to Managed Care , 2000 .

[8]  O. Williamson.  Comparative Economic Organization: The Analysis of Discrete Structural Alternatives , 1994 .

[9]  Karen L. Sedatole,et al.  Sourcing parts of complex products: Evidence on transactions costs, high-powered incentives and ex-post opportunism , 2000 .

[10]  Hema A. Krishnan,et al.  The influence of mergers on firms' product‐mix strategies , 2004 .

[11]  M. Duggan,et al.  Hospital Ownership and Public Medical Spending , 2000 .

[12]  W. Powell,et al.  The iron cage revisited institutional isomorphism and collective rationality in organizational fields , 1983 .

[13]  Ronald H. Coase,et al.  1. The Nature of the Firm: Origin , 1988 .

[14]  O. Williamson.  Transaction Cost Economics and Organization Theory , 1993 .

[15]  S. Rose-Ackerman.  Ideals versus Dollars: Donors, Charity Managers, and Government Grants , 1987, Journal of Political Economy.

[16]  O. Williamson.  Markets and Hierarchies , 1975 .

[17]  C. Prahalad,et al.  Competing for the Future , 1994 .

[18]  John C. Fellingham,et al.  Make-or-buy in the presence of uncertainty and private information , 2005 .

[19]  Peter W. Roberts,et al.  Integrating Transaction Cost and Institutional Theories: Toward a Constrained-Efficiency Framework for Understanding Organizational Design Adoption , 1997 .

[20]  Gerald R. Salancik,et al.  Organizational Discretion in Responding to Institutional Practices: Hospitals and Cesarean Births , 1996 .

[21]  Roland F. Speklé,et al.  Explaining management control structure variety: a transaction cost economics perspective , 2001 .

[22]  J. Goodstein.  Institutional Pressures and Strategic Responsiveness: Employer Involvement in Work-Family Issues , 1994 .

[23]  Mark S. Granovetter.  Economic Action and Social Structure: The Problem of Embeddedness , 1985, American Journal of Sociology.

[24]  Peter G. Klein,et al.  Empirical Research in Transaction Cost Economics: A Review and Assessment , 1995 .

[25]  James C. Robinson.  Market Structure, Employment, and Skill Mix in the Hospital Industry , 1988 .

[26]  R. Coase.  The Nature of The Firm - Influence , 1988 .

[27]  James C. Robinson,et al.  Hospital tiers in health insurance: balancing consumer choice with financial incentives. , 2003, Health affairs.

[28]  R. Coase.  The Nature of the Firm , 1937 .

[29]  C. Prahalad,et al.  The Core Competence of the Corporation , 1990 .

[30]  Ronald H. Coase,et al.  ACCOUNTING AND THE THEORY OF THE FIRM , 1990 .

[31]  Mark W. Dirsmith,et al.  Changes in the institutional environment and the institutions of governance: extending the contributions of transaction cost economics within the management control literature , 2003 .

[32]  O. Williamson.  The Lens of Contract: Private Ordering , 2002 .

[33]  W. Rogers.  Regression standard errors in clustered samples , 1994 .

[34]  D. North.  Institutions, Institutional Change and Economic Performance: Economic performance , 1990 .

[35]  H. White.  A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity , 1980 .

[36]  Yang Cao,et al.  Market Transition and the Firm: Institutional Change and Income Inequality in Urban China , 2005, Management and Organization Review.

[37]  John W. Meyer,et al.  Institutionalized Organizations: Formal Structure as Myth and Ceremony , 1977, American Journal of Sociology.

[38]  L. Zucker.  Institutional Theories of Organization , 1987 .

[39]  Richard A. Lambert.  Contracting Theory and Accounting , 2001 .

[40]  M. Toffel,et al.  Organizational Responses to Environmental Demands: Opening the Black Box , 2008 .