Multiple Considerations in Making Governance Choices: Implications of Transaction Cost Economics, Real Options Theory, and Knowledge-Based Theories of the Firm

Consider the following scenario. A small bio-technology firm has developed a product prototype. While this prototype has shown some market potential, it has yet to receive regulatory approval for commercial development. To receive this approval, it must first be tested in a series of clinical trials, and then be produced and marketed to consumers. These activities can take from ten to twelve years to complete. Thus, this firm will not know, with any degree of certainty, if its product prototype is economically viable for at least ten to twelve years.