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Advances in Business & Management: Volume 2 (Advances in by William D. Nelson

By William D. Nelson

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Transaction costs in different stages of trade transactions Stage Contact stage Contract stage Control stage Type of transaction Investment in information about customer / supplier or potential producer Investing in the relationship Reason of costs Information is costly Investment in costs of preparing contract Distribution of profits Costs of compliance of agreement Investing in continuing/ improving the relationship International complications Hindered communication Information is incomplete Information is unavailable Formulation of Agreement Monitoring costs Enforcement of contract provisions Divergent expectations between the parties, verification problems and uncertainty Greater uncertainty Due to: Differences in language Differences in culture Differences in means of communication Differences in culture Differences in legal system Change of information by larger distance Problem of interpretation in verification Ignorance of law and system of values and norms In the contact stage of a potential transaction, the buyer is looking for information about his or her preferred product (price and quality), potential suppliers, or, when the product does not yet exist, which producer could invent and/or produce it for her or him.

5. THE ECONOMICS OF ORCHESTRATION Orchestrating the Production Chain As has been noted previously the global fragmentation of production that breaking up the production chain and outsourcing parts of the chain to be produced abroad becomes increasingly important. To know how to do this is precisely what creates value in the era of globalization. This decoupling of the production chain and creating value by outsourcing requires a good skill of organizing and coordinating the whole production process.

This ―formal trust‖ is related to the rational choice concept of trust (Coleman, 1990) and extrinsic motivation (Frey and Jegen, 2001). Formal trust is closely linked to what is known by other authors as instrumental trust, rational trust, calculative trust (Williamson, 1993), selfinterested trust (Lyons and Mehta, 1997), synthetic trust (Putnam, 2000), fragile trust (Lindenberg, 2000), narrow trust or egoistic trust (Nooteboom, 2002) and, to some extent, system trust (Luhmann, 1997, Bachmann, 2001).

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