Same product, different price: Experimental evidence on the transaction cost expenditures of selling to governments and firms

Public Administration Review · 2022 · 14 citations

• Business
• Industrial organization
• Commerce

Abstract Whether governments pay more than firms when contracting has been an important and stubbornly vexing question in public management. One challenge has been finding ways to credibly compare the costs of engaging in market transactions with governments versus firms. In this paper, we systematically compare the costs of contracting when governments and firms buy the same product under the same circumstances. Using data from a randomized experiment of Danish firms, we examine selling firms' transaction cost expenditures when selling the same product to governments and other firms. We find that firms estimate spending about 34 percent more on transaction cost expenditures when selling to governments than when selling the same product to firms. Experience in selling to governments is associated with lower transaction cost expenditures, suggesting that learning can reduce firms' costs of selling to governments and firms.

Businesses' transaction costs when contracting with governments: the impact of product complexity and public contract management experience

International Public Management Journal · 2021 · 16 citations

• Business
• Marketing
• Industrial organization

When governments buy products and services, the purchase price reflects not just the seller’s production costs, but also the costs of making the exchange occur. How much selling businesses spend and for which activities has important implications for the management activities governments need to execute to increase the likelihood of a successful exchange. This article develops a framework for analyzing businesses’ transaction cost spending across varying circumstances of selling products to governments. Using unique data from two original surveys of private businesses in Denmark, we provide a rare portrait of how much sellers spend across several categories of contract management activities. Consistent with extant research, we show that these expenditures are lower when selling products with less risky attributes. We also find lower expenditures when businesses have contracted with governments in the past, a finding that suggests that experience can lower the risks of a failed transaction. These results suggest that governments need to calibrate their purchasing activities not only to the circumstances of the exchange, but also to the businesses’ own transaction cost spending.

Corporate sustainability and financial performance: Collective reputation as moderator of the relationship between environmental performance and firm market value

Business Strategy and the Environment · 2020 · 60 citations

• Business
• Industrial organization
• Economics

Abstract Markets value superior corporate sustainability performance in part because investors use a firm's environmental performance as a signal of desirable but difficult‐to‐observe attributes, such as the firm's integrity capacity. Yet a signaling conflict can arise when a firm belongs to an organizational form that has a collective reputation for being unethical. In such circumstances, the firm's environmental performance may no longer credibly signal its underlying integrity capacity, leading markets to adjust downward the value they would otherwise place on the firm's environmental performance. Using longitudinal data on South Korean firms, we find that improvements in firm environmental performance lead to smaller increases in market values for firms belonging to a poorly reputed organizational form. However, firms can partially recover lost value by adopting firm features that reduce the signaling conflict, thereby restoring the notion of corporate sustainability performance driving firm market values.