Strategic Management: Property Rights, Transaction Costs, and Agency Theories

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Table of Contents

Theories Definition
Connecting Theories to the Oil Industry
List of References

Theories Definition

Agency Theory

The utilization of oil fields allows for demonstrating the key tenets of the theories under analysis perfectly. Namely, the Agency Theory principles are applicable to the oil field. The shareholders of oil organizations can be considered the principals, whereas the corresponding companies represent agents. Consequently, in the target context, the application of the Agency Theory will entail a reconsideration of the role of shareholders and companies in regard to their rights to ownership.

Property Rights Theory

In turn, the PRT serves as the mediator between the AT and TCT. Applied to the Oil Industry context, the PRT In the context of the oilfield, the PRT is represented by the standard known as the “once-and-for-all” rule (Kim & Mahoney, 2005). Implying that the established standards for the use of an oil deposit cannot be renegotiable, the specified standard allows presenting legal issues from occurring.

Transaction Cost Theory

Finally, the Transaction Cost Theory can be applied to the oil industry setting impeccably, as the article by Kim and Mahoney (2005) shows. The theory posits that the reduction in the costs of exchange occurring within an organization’s supply chain and improving its overall performance is the main goal for an organization to pursue (Kim & Mahoney, 2005). In the context of the oil industry, where both the costs and the demand for the product are relatively set, the drop in cost exchange is a very welcome alteration. By reducing costs for obtaining crude oil, one will inevitably increase profits.

Connecting Theories to the Oil Industry

Considering a better definition for each of the theories under analysis, one may need to explore the context in which they are to be applied. The current explanations of each theoretical framework are intentionally generalized so that they can be applicable to any organizational context. As a result, a more nuanced definition requires a better understanding of the target environment. Namely, the Agency Theory in the oil industry setting can be described as the theoretical premise explaining the relationships between the principals, or shareholders, and the agents, or the executives (Kim & Mahoney, 2005).

In turn, the Property Rights Theory can be defined as the theory delineating the dynamics of relationships between the agents of the target set in regard to the property rights regulations. Specifically, in the oil industry, the interests of the participants may clash over the issues of private property and intellectual property rights (Kim & Mahoney, 2005). Specifically, intellectual property discord may occur as a result of miscommunication and misunderstanding of the use of specific knowledge resources.

The private property issues may take place due to the mismanagement of the roles of participants in accordance with the Agency theory. Thus, the three theories discussed above intertwine in the context of the oil industry, creating a single framework for understanding its core processes, as Kim and Mahoney’s (2005) paper suggests.

Finally, the Transaction Cost Theory allows for examining the effects of internal and external transactions on the overall performance and cost balance within an oil industry.

List of References

Davis, G. and Adam Cobb, J., 2010. Chapter 2 Property rights theory: Past and future. Research in the Sociology of Organizations, pp.21-42.

Drees, J. and Heugens, P., 2013. Synthesizing and Extending Property rights Theory. Journal of Management, 39(6), pp.1666-1698.

EisenhaPRT, K., 1989. Agency Theory: An Assessment and Review. Academy of Management Review, 14(1), pp.57-74.

Fındıklı, M., 2019. Property rights Theory, Firm Performance And Producers-Suppliers Relationships. In: Joint Conference ISMC 2018-ICLTIBM 2018 – 14th International Strategic Management Conference & 8th International Conference on Leadership, Technology, Innovation and Business Management. [online] Future Academy. Web.

Kim, J. and Mahoney, J., 2005. Property rights theory, transaction costs theory, and agency theory: an organizational economics approach to strategic management. Managerial and Decision Economics, 26(4), pp.223-242.

Hillman, A., Withers, M. and Collins, B., 2009. Property rights Theory: A Review. Journal of Management, 35(6), pp.1404-1427.

Omondi-Ochieng, P., 2019. Financial performance trends of United States Hockey Inc: a resource-dependency approach. Journal of Economics, Finance and Administrative Science, 24(48), pp.327-344.

Powell, K. and Rey, M., 2015. Exploring a Property rights perspective as an organizational strategy for building resource capacity. Management in Education, 29(3), pp.94-99.

Seo, J., 2011. Property rights Patterns And Organizational Performance In Nonprofit Organizations. Degree Doctor of Philosophy. ARIZONA STATE UNIVERSITY.

Williamson, O., 1981. The Economics of Organization: The Transaction Cost Approach. American Journal of Sociology, 87(3), pp.548-577.

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