The use of transaction cost economics, fuzzy set and systems theories in the development of a three-dimensional pricing model of asset specificity and contracts, and applied to health care

This dissertation integrates and expands economist Oliver Williamson's theoretical work in contracts and governance between 1985 and 1991. In the theory of markets, hybrids, and firms, the governance structure is supported by a syndrome of attributes that include contract type, market disturbance and resolution, adaptation, control, incentives and asset specificity. Research emphasizes the analysis of the hybrid and the interaction of the variables of asset specificity, contractual safeguards and transaction costs to hybrid pricing optimality. A three-dimensional model of these relationships is developed using fuzzy set theory and is tested with a general equilibrium economic model of pricing. The generated theorem states that within the hybrid there is an optimal price as a result of optimal asset specificity and optimal contractual safeguards.;Between 1983 and 1989, the federal government enacted extensive legislation to constrain health care costs. As a result, hospitals merged and vertically integrated into hospital systems. These managed care networks contractually bind physicians and hospitals to insurance companies. Hospitals represent the most expensive component of care within this health care delivery network and physicians control the delivery of health care services and, thus, price and cost of care. The three-dimensional model explains the organizational restructuring of health care delivery firms into networked health maintenance organizations between the 1970s and 1990s. The application of the model is useful in describing changes in pricing as a result of transaction costs associated with asset specificity and contractual safeguards. A theoretically derived second theorem states that health care network organizational redesign and bilateral contract arrangements provide a means of reducing the health care delivery price.;Findings have relevance in several areas. The modeling of the hybrid advances work in economic theories of industrial organization and provides a theoretical bridge for application to non-manufacturing, service sector organizations such as hospitals. The theoretical work is instructive to those who conduct research in transaction cost economics and make health care policy decisions.