Transaction Cost Theory goes ABSS:
Can Agent-Based Social Simulation be helpful in understanding economic theories?

By: Bogdan Werth, Scott Moss Date: 26st March 2007
CPM Report No.: CPM-07-175


The topic of IT outsourcing has been around in academic research for the last fifteen years. Despite the lack of commonly accepted interpretation of outsourcing outcomes, the practice of outsourcing in modern corporations is proliferating. This trend forced both practitioners and academics to theorize and speculate on the underlying momentum towards outsourcing. Past research on IT outsourcing has mainly focused on the transaction itself, without investigating the strategic characteristics of the organization not to mention a built-in social framework of the firm or social context a firm is located in. This captures the widely held perception that organizational members make sourcing decisions based upon an economic rationale and regard social factors as negligible in their influence on the overall picture of outsourcing. This paper introduces a novel approach for investigation of various theories used to account for make-or-buy decisions. It goes down the line of Agent-Based Social Simulation and represents actors of the outsourcing process as heterogeneous agents. This approach is contrary to a widely held perception of economic standard literature with its assumption of homogeneous actors.

transaction cost theory, agent-based social simulation, outsourcing, offshoring

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