Publication Type
Journal Article
Version
submittedVersion
Publication Date
9-2008
Abstract
Implementation and maintenance of interorganizational systems (IOS) require investments by all the participating firms. Compared with intraorganizational systems, however, there are additional uncertainties and risks. This is because the benefits of IOS investment depend not only on a firm's own decisions, but also on those of its business partners. Without appropriate levels of investment by all the firms participating in an IOS, they cannot reap the full benefits. Drawing upon the literature in institutional economics, we examine IOS ownership as a means to induce value-maximizing noncontractible investments. We model the impact of two factors derived from the theory of incomplete contracts and transaction cost economics: relative importance of investments and specificity of investments. We apply the model to a vendor-managed inventory system (VMI) in a supply chain setting. We show that when the specificity of investments is high, this is a more critical determinant of optimal ownership structure than the relative importance of investments. As technologies used in IOS become increasingly redeployable and reusable, and less specific, the relative importance of investments becomes a dominant factor. We also show that the bargaining mechanism-or the agreed upon approach to splitting the incremental payoffs-that is used affects the relationship between these factors in determining the optimal ownership structure of an IOS.
Keywords
Economic theory, Incomplete contracts, Interorganizational information systems, Investment specificity, Information systems, IT investments, Ownership, Property rights, Relative importance, Supply chain management
Discipline
Databases and Information Systems | Management Information Systems
Research Areas
Information Systems and Management
Publication
Information Technology and Management
Volume
9
Issue
3
First Page
181
Last Page
200
ISSN
1385-951X
Identifier
10.1007/s10799-008-0039-9
Publisher
Springer
Citation
Han, Kunsoo; KAUFFMAN, Robert J.; and Nault, Barrie R..
Relative Importance, Specific Investment and Ownership in Interorganizational Systems.. (2008). Information Technology and Management. 9, (3), 181-200.
Available at: https://ink.library.smu.edu.sg/sis_research/2746
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1007/s10799-008-0039-9