The evolving role of institutions

  • Ribbers, Piet, (Principal Investigator)

    Project: Research project


    The evolving role of institutions

    Electronic commerce is a wide ranging concept, which can be understood from at least three points of view: an organizational, (i.e. business), a technological and a legal perspective. In the literature about e-commerce not much attention is paid to the combination of these perspectives. E-commerce has primarily been studied from rather isolated academic professions and disciplines. Added value and synergy - both theoretical and practical- could be achieved, if we combine these three perspectives into an integrated, interdisciplinary research proposal. In this specific proposal we address the combination of the organizational and the legal perspective. The relevancy of this combination is based on the following line of reasoning and combination of theoretical insights, ideas and notions. These notions have in common that they are based on institutional approaches and schools in organizational and legal studies. E-commerce focuses on the interactions and transactions, commercial and otherwise, between different parties such as businesses, consumers and public agencies; interactions and transactions, which are embedded in, facilitated, and triggered by network technology, such as EDI and the Internet. In this proposal we concentrate on the economic and legal institutional conditions under which electronic interactions and transactions occur between the parties involved. The involvement of organizations, groups and individuals in electronic commerce takes place in a rather uncertain and ambiguous environment that is difficult to survey. A reduction of uncertainty and ambiguity forms a precondition for the development of electronic relations between parties. In order to reduce uncertainty and ambiguity parties try to stabilize their exchange relations. Moreover, parties try to reduce the transaction costs in an electronic environment. A transaction can be described as a transfer of property rights between two parties. The preparation, agreement settlement, adjustment, and control of transactions creates a number of costs, so called transaction costs (Picot et al, 1997:108). In transaction costs theory, costs are the result of a number of frictions in economic systems. According to Williamson (1975) the following factors are relevant: bounded rationality, asset specificity, small numbers, opportunism, information impactness, and uncertainty. They influence the conditions under which transactions take place. In order to reduce transaction costs, market actors develop a number of institutional arrangements, which are mandatory for the market actors (Picot et al. 1997:111). These institutional arrangements can be seen as a way of stabilizing market interactions and transactions. Market mediation through information and communication technology can significantly reduce transaction costs. In the information phase search costs shrink, because alternatives can easily be compared, for instance by a mouse click. In the order-routing phase, where market actors inform other market actors about their desire to conduct a specific market transaction, electronic order-routing enables a direct processing of an order without all kinds of interruptions and barriers. In the execution phase, in which the terms of exchange are negotiated, information and communication technology, for instance, reduce the costs of misunderstandings. And in the settlement phase, in which the executed transaction is settled, information and communication technology makes it possible to reduce costs of carrying cash , for example (Picot et al., 1997:111). These phases call for a number of market institutions. Transparency institutions define the visibility of market conditions and market actors. Access institutions define the quality of entering a market, while price discovery institutions define how price negotiations are conducted. Settlement institutions determine the settlement of executed transactions (Picot et al., 1997:111). Institutional arrangements can be seen as mechanisms, that stabilize the interactions and transactions in the electronic market place. They influence the conditions under which electronic commerce takes place. They also influence the factors, that account for the rise of transaction costs. Institutional arrangements can be described as implicit and explicit, informal and formal rules that guide the interactions and transactions which are involved in electronic commerce, so that the conditions under which they take place become less uncertain and ambiguous. For instance, settlement rules define how electronic payment should take place. The emergence of institutional arrangements - and rules - in electronic commerce to create a more stable electronic market environment can be studied from a combination of an organizational and legal perspective. From an organizational point of view market parties develop strategic networks, and co-ordination and co-operation structures to create a common infrastructure. Organizations are willing to participate in such a common architecture and infrastructure, if the electronic exchange and sharing of data will have added value for their own systems, processes, and decisions. The integration of systems and infrastructures reduces uncertainty and increases the rationality of the internal and exchange processes, and creates competitive advantages by optimizing transaction and coordination costs (Jarillo, 1998, 1993; Wigand, 1996). The result is that the boundaries between these organizations begin to blur, so that one can hardly speak about separate organizations. In the literature one often refers to the rise of boundariless, virtual organizations, and network organizations (Morgan, 1990; Rockart & Short, 1991; Davidow & Malone, 1992; Askenas et al, 1995; Tapscott, 1996; Martin, 1996). Virtual organizations can be seen as institutional arrangements for electronic commerce, in which rules are embedded regarding the transparency, the access and settlement of electronic interactions and transactions. Institutional arrangements and market rules as stabilizing forces play an important role from a legal perspective on electronic commerce too. External parties, such as governments, can adopt policies that stimulate the development of electronic commerce and which are focussed on the removal of legal barriers; policies can also be formulated regarding the transparency of the electronic market place, the access of parties, competition, price and exchange conditions, the settlement of disputes, consumer protection, and the development of codes of conduct (Van Kralingen, 1997). However, the functioning of electronic markets is not only the object of government regulations. Self-regulation is another option. Market parties can develop their own policies to stabilize and facilitate electronic transactions, for instance by establishing trusted third parties. The nature of electronic transactions is another point of interest from a legal perspective. In electronic commerce electronic messages play an important role. They replace paper messages. However, the main problem with electronic messages is the authenticity of these messages, because electronic messages can easily be manipulated. The same problems occur with electronic contracts and with intellectual property rights (Prins &Van Kralingen, 1997). What is the status of an electronic message or contract? Was does legal proof mean in a digital business environment? These questions point at the necessary development of new rules and institutional arrangements to stabilize the electronic market place. The last issue to be mentioned deals with the international or global nature of electronic commerce. Electronic commerce questions the jurisdiction of the nation-state in dealing with the questions raised above (Perritt, 1996; Perritt, 1997). Moreover, it raises questions of taxation regarding these transactions. How can we raise taxes, if it is not quite clear where electronic transactions take place (WRR, 1998)? However, institutional arrangements (organizational and legal) which provide trust, interoperability and business value are not given and not neutral. Attention should also be paid to the shaping of the arrangements. For instance, national and international standards that try to enhance interoperability, codes of conduct, laws and regulations, and the establishment of trusted third parties are shaped in a specific political context. In this context different stakeholders, with different interests, positions, opinions, and power resources try to influence the contents, form and range of these standards, laws and regulations. Examples of these stakeholders are companies that are or want to be engaged in electronic commerce (e.g. banks and retailers), software and hardware enterprises (e.g. Microsoft), national and international public organizations (like the European Union, the United States, and the GATT) and consumer organizations. The establishment of new institutional arrangements can be seen as the reflection of this power play, the interests that are at stake and the strategies that are deployed (Kling, 1987; King & Kraemer, 1995; Bekkers, 1996; Kahin & Nesson, 1997; Bellamy & Taylor, 1998). Moreover, the existing organizational and legal arrangements can be seen as obstructing the development of new institutional solutions in the field of trust, interoperability and business value, which can lead to an institutional crisis, for instance in the field of taxes (WRR, 1998). A combined organizational-legal perspective on electronic commerce is a fruitful perspective, because it shows us how existing institutional legal barriers and problems are obstacles for the smooth development of electronic commerce and virtual organizations. Besides they show us that emergent virtual organizations, electronic markets and electronic commerce require the development of new legal rules and institutions.

    looptijd: 4 jaren
    aan te stellen: post-doc (1.0 fte)
    deelnemende faculteiten:
    Faculteit der Rechtswetenschappen - KUB
    Faculteit der Economische Wetenschappen - KUB
    prof.dr. P. Frissen (KUB)
    prof.dr. P. Ribbers (KUB)
    Short titleThe evolving role of institutions
    Effective start/end date1/01/021/01/06