Who Should Own “it”? Ownership and Incomplete Contracts in Interorganizational Systems

Interorganizational systems (IOSs) are becoming ever more important due to the rapid growth of business-to-business electronic commerce and firms’ increasing needs for collaboration to respond to today’s fast-paced business environment. However, the substantial investment in information technology (IT) that is required and the uncertain benefits have resulted in underinvestment. We use the theory of incomplete contracts to examine what ownership structures of IOS assets maximize firms’ incentives to invest and the resulting value that they can appropriate. Because the characteristics of IOSs affect the optimal ownership structure, we also propose a new typology of IOSs that facilitates our analysis of asset ownership and investment incentives. Finally, we apply our framework to analyze the asset ownership structures of a specific type of IOS to support vendor-managed inventory (VMI) in supply chain management.