Aligning to Trust, Patience, and Expectations? Behavioral Determinants of Value Chain Governance

Abstract: Based on the assumptions of opportunism, bounded rationality, and transaction properties, new institutional economics aims to explain the modes of governance in industrial organization. Yet, we can frequently observe co-existing modes within industries. Governance may also align to economic behavior. We test whether variations in behavior can explain variations and co-existence in governance when transaction properties of a given industry are homogenous. Specifically, we elicit time preference and price expectations and conduct trust experiments between different value chain partners in the Swiss wood sector. We find that all three behavioral dimensions influence value chain choice. Thus, the integration of behavioral economics approaches in institutional economics can add explanatory power to understand the alignment of governance in a given industry.