Transaction Costs and Outsourcing Decisions in Small- and Medium-Sized Family Firms

An important difference between family and nonfamily firms, and among different types of family firms, is in the way they make outsourcing decisions and thereby define the boundaries of the firm. The authors propose that transaction costs arising from human asset specificity, threats of opportunism, and risk aversion will make small- and medium-sized family firms operating with technologies of low to medium complexity less likely to outsource than comparable nonfamily firms. The authors also argue that the limiting influence of transaction costs on the outsourcing decisions of family firms may be mitigated by variations in available suppliers, goals, and ownership structures.