Relative Explanatory Power of Agency Theory and Transaction Cost Analysis in German Salesforces

In this paper we take an integrated view of Transaction Cost Analysis and Agency Theory to study the direct vs rep decision and the design of compensation plans in German salesforces. While we attempt to investigate the generalizability of the findings in the U.S.A. to those in Germany, we also develop a set of new hypotheses in the context of both these decisions and report new effects. Finally, we assess the complementarity of these two approaches by estimating the relative explanatory power of the two frameworks for each of these decisions. We report that while almost all the findings with respect to the design of compensation plans in the U.S.A. are generalizable to Germany, the findings with respect to the direct vs. rep decision are not equally generalizable. We also find that while Agency Theory does not add much to explain the decision of direct vs. rep in our data, Transaction Cost Analysis is equally limiting in helping understand the design of salesforce compensation plans.