Outsourcing in Construction. A Transaction Cost Theory Interpretation

The high variety of construction projects in the construction industry requires several technological and production capabilities by firms. The organization and production arrangements of these contracting organizations vary according to the particular type of construction in order to optimize the use of the production resources. This paper analyzes the characteristics of US contractors in terms of markets, technologies, capabilities and production arrangements according to the framework of transaction cost theory. The analysis shows that firms tend to internalize or outsource part of their production depending on the specificity of their assets. Census data are used to support the particular production criteria of firms as predicted with the considered theory.