Markets, Hierarchies, or Hybrids as Alternative Governance Structures in Construction Contracts: Transaction Cost Economics Analysis

Transaction cost economics is attracting considerable attention for establishing governance structures in institutions based on the so-called transaction dimensions (specificity, uncertainty, and frequency). However, few studies have looked at project governance based on transaction dimensions in construction. This research remedies this gap by providing an in-depth evaluation of the effect of transaction dimensions on the choice of project delivery and contract mechanism of a set of 84 construction projects. The study adopts data analysis through the Delphi method with the support of multinomial logistic and binary logistic regressions. The results support transaction cost economics for design-build versus design-bid-build and relational versus nonrelational choices. The results also show that project specificity is the primary driver in choosing project governance. This study gives empirical evidence for applying transaction cost economics in construction management. The research contributes to a further understanding of the choice between markets, hierarchies, or hybrids as alternative governance structures in construction projects.