Inter-Organizational Trust as a Shift Parameter in the Extended Transaction Cost Framework: A First Application to the LNG Industry

This paper provides an empirical analysis examining the effect of both transaction characteristics and
the institutional environment on governance choice. Using a dataset of 237 corporate-specific value
chains in the global LNG industry, we introduce inter-organizational trust as a shift parameter.
Following transaction cost economics, it is hypothesized that specific investments under uncertainty
provide incentives to integrate vertically. Second, it is argued that inter-organizational trust changes
the relative costs of vertical integration and non-integration and supports less hierarchical
organizational structures. These economic relationships are tested based on probit and ordered probit
models. Estimation results provide broad support for both propositions