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In the last two decades, a number of environmental shifts have led to new opportunities for interfirm cooperation--the globalization of markets, the convergence of and rapid shifts in technologies, the rise of Japan and Europe as technologically advanced economies, and regulatory changes within the United States. Perhaps the most significant manifestation of this rise in interorganizational cooperation has been the dramatic increase in interfirm strategic alliances. Such alliances encompass a variety of agreements whereby two or more firms agree to pool their resources to pursue specific market opportunities. These agreements include joint ventures, joint R&D agreements, technology exchange, direct investment, licensing, and a host of other arrangements. Many empirical studies have documented the dramatic growth of such alliances in numerous industrial sectors, the multitude of reasons why firms have entered into such partnerships, and the wide variety of contractual arrangements firms use to formalize their alliances (Contractor & Lorange, 1988; Harrigan, 1986, 1989; Hergert & Morris, 1988; Hladik, 1985).
Economists and management theorists have become concerned in recent years with the contractual, or governance, structures used in alliances and most have adopted a theoretical stance informed by transaction cost economics (cf. Hennart, 1988; Pisano, 1989; Pisano, Russo, & Teece, 1988). Transaction cost theorists argue that anticipated transaction costs determine the type of contract used in an alliance. Transaction costs, which typically arise out of concerns about opportunistic behavior on the part of one or more of a set of partners, include the costs of negotiating and writing contingent contracts, monitoring contractual performance, enforcing contractual promises, and addressing breaches of contractual promises (Joskow, 1985: 36).
Much of the prior empirical research on transaction cost economics has examined the choice companies make between vertical integration and arm's-length market transactions, also called the make-or-buy decision (Balakrishnan & Wernerfelt, 1986; Masten, 1984; Monteverde & Teece, 1982; Walker & Weber, 1984). In these instances, treating each transaction as discrete is justifiable since the repeated making of ties between the same two partners is rare. However, two firms may enter multiple strategic alliances with each other over several years. Empirical studies on the governance of alliances have unfortunately continued in the transaction cost economics tradition, treating each alliance as independent and considering the activities it includes as singularly reflecting the transaction...