A general theory of network governance: Exchange conditions and social mechanisms

A phenomenon of the last 20 years hers 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 hers 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 brood 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 pierce, the network governance form has advantages over both hierarchy and market solutions in simultaneously adapting, coordinating, and safeguarding exchanges.