Search

To what extent are personal trust, mutual interests, and third parties important in enforcing agreements to trade How do firms combine these to form transactional governance structures This paper answers these questions in a whole-economy, cross-country setting that considers a full spectrum of transactional-governance strategies. The data collection requires a new survey question answerable in any context. The question is applied in six South American countries using representative samples, with the resultant survey weights facilitating a whole-economy analysis. Without imposing an a priori model, latent class analysis estimates meaningful governance structures. Bilateralism is always used. Law is never used alone. Bilateralism and formal institutions are rarely substitutes. Within country, inter-regional variation in governance is greater than inter-country variation. The usefulness of the data is shown by testing one element of Williamson's discriminating-alignment agenda: greater uncertainty in the transactional environment increases the involvement of third parties.

A new set of survey questions is used to map governance structures that firms employ to support the successful implementation of transactions. Responses to the questions were collected as part of the Enterprise Surveys in six South American countries. Without imposing any a priori model, latent class analysis (LCA) discovers meaningful patterns of governance structures that readily match constructs in the literature. All governance structures use bilateralism. Bilateralism and formal institutions are sometimes complements, but never substitutes. For each firm, LCA provides estimates of the posterior probability that the firm uses each of the discovered governance structures. These estimates can be used by researchers to go further, testing their own hypotheses relevant to Williamson's discriminating alignment agenda using additional data from the Enterprise Surveys or elsewhere. Variations in the effectiveness of different governance structures across countries and across different types of firms and transactions are explored. Regional variation within countries is greater than cross-country variation. Foreign-owned firms, exporters, larger firms, and better-managed ones are more likely to use governance structures that complement bilateralism with use of the legal system or with the help of paid third-parties.