Prior research on Information Technology Outsourcing has characterized the dominant governance modes as either ‘Formal’ or ‘Relational,’ which rely on stringent assumptions of either perfect foresight or about the extent to which one party can punish unilateral deviations by the other. We propose a third alternative for inter-firm contract governance. The social network capital offers a measure of reputation that can indicate to future trading partners the reduced likelihood of opportunistic behavior. The network of trading partners enables a community enforcement of contracting terms by providing safeguards that may not be offered by traditional measures. Based on a large dataset of public ITO announcements we examine the role that structural embeddedness can play in predicting contract duration. We find preliminary evidence suggesting that network position does matter in predicting contract structure over and above the traditional economic variables.
Available at: http://works.bepress.com/anjanasusarla/2/