Question

How might globalization and advances in information technology affect the trade- offs between technical and agency efficiency?

Answer 1

A larger and more specialized industry will be resulting from the globalization and advancements in information technology. Because of increased transaction scale, the production cost disadvantage of an internal organization is reduced and thus there will be a downward shift in the curve of Delta T.

Apart from this, the resulting increase in the transaction scale, there will be a downward shift in DeltaA curve due to its movement towards the mode which has relatively reduced exchange costs and thus to the integrated mode. Due to this, the range in which the vertical integration is the least cost organizational mode is increased. Thus the rule of thumb which applies here is higher the scale of transaction, more danger will be involved in the asset specificity.