A General Theory of Network Governance: Exchange Conditions and Social Mechanisms

• Published in: The Academy of Management review 1997-10, Vol.22 (4), p.911-945
• Main Authors: Jones, Candace, Hesterly, William S., Borgatti, Stephen P.
• Format: Article
• Language: English
• Subjects: Cooperation; Coordinate systems; Corporate governance; Costs; Economic coordination mechanisms; Economic theory; Economic uncertainty; Governance; Management; Motion picture industry; Nonprofit organizations; Opportunistic behavior; Organization theory; Social interaction; Social networking; Social networks; Social structures; Social theory; Transaction costs
• ISSN: 0363-7425; 1930-3807
• DOI: 10.2307/259249

A phenomenon of the last 20 years has been the rapid rise of the network form of governance. This governance form has received significant scholarly attention, but, to date, no comprehensive theory for it has been advanced, and no sufficiently detailed and theoretically consistent definition has appeared. Our objective in this article is to provide a theory that explains under what conditions network governance, rigorously defined, has comparative advantage and is therefore likely to emerge and thrive. Our theory integrates transaction cost economics and social network theories, and, in broad strokes, asserts that the network form of governance is a response to exchange conditions of asset specificity, demand uncertainty, task complexity, and frequency. These exchange conditions drive firms toward structurally embedding their transactions, which enables firms to use social mechanisms for coordinating and safeguarding exchanges. When all of these conditions are in place, the network governance form has advantages over both hierarchy and market solutions in simultaneously adapting, coordinating, and safeguarding exchanges.