## 2 Theoretical Background
### Transaction Cost Economics (TCE)  
TCE is one of the major theories of organization. The TCE perspective has its roots in the work of [PERSON] [49]. [PERSON] [50; 51; 52] further developed TCE as a governance mechanism. After comparing differences between TCE and agency theory, [PERSON] [52] suggested that TCE offer important insights into understanding of sustainable organization development and resource optimization for the sustainability of organizational development. The TCE perspective has its roots in the work of [PERSON] [49]. Compared to the neoclassical economic approach (where emphasis is on the firm as a production function), [PERSON] [49] argued that the market and the firm are two modes of governance, and what ultimately determines the choice of governance mode can be linked to differences in transaction cost. However, it was [PERSON] [50; 51; 52]who further developed this governance perspective into a strategic approach we today commonly refer to as TCE. At first glance, TCE appears to be presenting a fairly simple and straightforward idea: \"the properties of the transaction determine what constitute the most efficient governance structure\" [53], which is either the market or hierarchy (i.e., managing the transactions within a firm). According to [PERSON] [50; 51; 52], both types of exchange agreements are associated with costs, and the two governance forms also differ in their ability to support the exchanges between economic actors due to features and elements in the transactional context. Given its emphasis on efficiency, TCE favors picking the type of governance mode that minimizes transaction costs, which in turn, has resulted in a rich literature discussing and analyzing the importance of direct and/or opportunity costs associated with monitoring and governing transactions [52]. Hence, from a strategy viewpoint, deciding what governance form to go with is the way by which managers, etc., impact the costs of, for example, negotiating, monitoring, and enforcing contracts [53; 54]. Literature on TCE suggests that there are four major assumptions which lead to the differences and difficulties in the transactional exchange. First, TCE comes with two core behavioral assumptions: (1) \"opportunism\" and (2) \"bounded rationality.\" Opportunism refers to a decision maker's action that is based on self-interests (i.e., the decision maker makes a conscious decision to take selfish advantage of circumstances) [53; 55; 56]. Bounded rationality is the assumption that the human mind has cognitive limitations which make it difficult for decision-makers (in spite of their best efforts) to fully handle the complexities of all possible aspects of any particular decision [53; 54; 56]. Consequently, it is costly for decision-makers to acquire and evaluate information [53; 54]. In addition to these two core behavioral assumptions, TCE also acknowledges the role of \"imperfect information\" as a third assumption [53; 55]. It is suggested that transactions often take place in the presence of information asymmetries between a buyer and a supplier, which means that either party may enter the transaction having more knowledge than the other [53; 54]. A fourth, but less discussed and researched behavioral assumption in the TCE framework is \"risk neutrality\" [57; 55]. In combination, these four assumptions of TCE provide theoretical reasons for explaining why a firm is likely to design and implement costly mechanisms to monitor and enforce contractual performance [53; 54]. In addition to the four theoretical assumptions of TCE, prior studies suggest that transaction costs are affected by uncertainty, small numbers bargaining, and asset specificity [50; 53; 54; 56; 57; 58]. First, the presence of uncertainty makes it difficult to predict and set up effective measures of future performance, which means that the more uncertainty, the higher the need for monitoring and control.