Supply Chain-Wide Consequences of Transaction Risks and Their Contractual Solutions: Towards an Extended Transaction Cost Economics Framework

How supply chain actors manage their exposure to both supply- and demand-side risks is a topic that has been insufficiently examined within the transaction cost economics (TCE) literature. TCE studies often only examine transaction risks in the context of bilateral exchanges. This study aims to contribute to a shift within the TCE literature from a focus on bilateral transactions, to examining transactions within a supply chain context. In this article, various models are constructed that examine how supply chain actors' usage of contracts to manage their exposure to supply (demand)-side transaction risks can affect their exposure to demand (supply)-side transaction risks. The models show that when supply chain actors follow the recommendations from the traditional TCE model regarding the use of contracts, it may increase rather than decrease their exposure to transaction risks. However, when supply chain actors take into account simultaneously both supply- and demand-side transactions when making their contract decisions, as is recommended in this article, a reduction in exposure to transaction risks is more likely. This study offers managers various strategies for taking a supply chain-wide approach to reduce transaction risk exposure.