Employees Behaving Badly: How Opportunism Differs Across Hierarchical Forms (and How to Handle It)


While opportunism is a central behavioral assumption in transaction cost economics (TCE), its role in causing hierarchical failure is still unclear.  Adding insights from organizational theory and goal-framing theory to TCE, we further the understanding of opportunism in hierarchies by introducing four types of opportunism: 1) financial, 2) status, 3) effort, and 4) visceral opportunism. Moreover, we argue in the first set of propositions that different types of opportunism are more likely under different hierarchical forms (U-form, M-form and project matrix form) because each hierarchal form systematically brings specific common dominant goals to the forefront of organizational members’ minds, leading to different types of opportunistic behaviors.  In the second set of propositions, we argue that different governance mechanisms need to be deployed to address the different types of opportunism under each hierarchal form.