A phenomenon of the last 20 years has been the rapid rise of the
network form of governance. This govemance form has received significant
scholarly attention, but, to date, no comprehensive theory for
it has been advanced, and no sufficiently detailed and theoretically
consistent definition has appeared. Our objective in this article is to
provide a theory that explains under what conditions network governance,
rigorously defined, has comparative advantage and is therefore
likely to emerge and thrive. Our theory integrates transaction cost
economics and social network theories, and, in broad strokes, asserts
that the network form of governance is a response to exchange conditions
of asset specificity, demand uncertainty, task complexity, and
frequency. These exchange conditions drive firms toward structurally
embedding their transactions, which enables firms to use social
mechanisms for coordinating and safeguarding exchanges. When all
of these conditions are in place, the network governance form has
advantages over both hierarchy and market solutions in simultaneously
adapting, coordinating, and safeguarding exchanges.
A phenomenon of the last 20 years has been the rapid rise of thenetwork form of governance. This govemance form has received significantscholarly attention, but, to date, no comprehensive theory forit has been advanced, and no sufficiently detailed and theoreticallyconsistent definition has appeared. Our objective in this article is toprovide a theory that explains under what conditions network governance,rigorously defined, has comparative advantage and is thereforelikely to emerge and thrive. Our theory integrates transaction costeconomics and social network theories, and, in broad strokes, assertsthat the network form of governance is a response to exchange conditionsof asset specificity, demand uncertainty, task complexity, andfrequency. These exchange conditions drive firms toward structurallyembedding their transactions, which enables firms to use socialmechanisms for coordinating and safeguarding exchanges. When allof these conditions are in place, the network governance form hasadvantages over both hierarchy and market solutions in simultaneouslyadapting, coordinating, and safeguarding exchanges.
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