Transaction cost economics (TCE) is an empirically supported, theoretical paradigm that has been used to understand and predict the outcomes of make-or-buy decisions. At the same time, TCE research has been criticized for focusing solely on firm-level economic determinants of decision outcomes without considering other factors that may impact decision making in organizations. The purpose of this research is to examine the effects of variables associated with TCE and compensation systems on the outcomes of make-or-buy decisions to compare the predictive ability of these variables in the current business environment. Findings indicate that functional group reward systems are associated with the outcomes of make-or-buy decisions. Surprisingly, no support is found for the association between the TCE variables and decision outcomes.
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