Abstract: An important factor in all kinds of coordination is common knowledge; the knowledge that two or more persons share and know that they share. It increases the likelihood that communication is understood; allowing a speaker to formulate his or her message with an awareness of what the addressee knows and does not know. However, transaction cost economics and governance value analysis largely emphasize cooperation problems and not common knowledge, coordination and communication. This study thus develops and adapts the concept of common knowledge to a buyer-supplier setting and brings it into transaction cost economics and the governance value analysis framework. A model is tested on a sample of 305 purchasing relationships in the Scandinavian wood industry. It is found that it is possible to measure and analyze common knowledge as a construct with several dimensions. Common knowledge is important for coordination, communication and complex problem solving, and enables parties in a relationship to form expectations, communicate and negotiate effectively. This makes common knowledge important for cost reduction and end-product enhancement outcomes of relationships and for the ability to establish relational contracts. However, establishing common knowledge is costly, so agents are motivated to establish more common knowledge only when facing complex relationships, asset specificity, or uncertainty. Thesis with appendices: http://www.umb.no/ina/forskning/drgrader/2007-Sande.pdf

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