Property rights theory, transaction costs theory, and agency theory: an organizational economics approach to strategic management

• Published in: Managerial and decision economics Vol. 26; no. 4; pp. 223 - 242
• Main Authors: Kim, Jongwook, Mahoney, Joseph T.
• Format: Journal Article
• Language: English
• Published: Chichester, UK John Wiley & Sons, Ltd 01-06-2005; John Wiley and Sons; Wiley Periodicals Inc
• Series: Managerial and Decision Economics
• Subjects: Agency; Agency theory; Alliances; Business management; Cognitive models; Contract incentives; Corporate strategies; Costs; Decision theory; Economic costs; Economic resources; Economic theory; Economics; Firm theory; Joint ventures; Land use; Management principles; Management science; Market structure; Musical agency; Oil fields; Organization theory; Political science; Property rights; Reimbursement; Review articles; State court decisions; Strategic management; Transaction costs
• ISSN: 0143-6570; 1099-1468
• DOI: 10.1002/mde.1218

Property rights theory has common antecedents with contractual theories of the firm such as transaction costs and agency theories, and is yet distinct from these theories. We illustrate fundamental theoretical principles derived from these three theories by analyzing the business case of oil field unitization. Theoretical principles and application of theory to oil field unitization are each summarized. From this, it is possible to see how property rights theory is well suited to explain business situations where inefficient economic outcomes persist. Additionally, property rights theory forges new theoretical connections with other branches of organizational economics, in particular, resource-based theory.