Despite the recent proliferation of interfirm alliances designed to govern cooperative efforts in creating or exploiting technology, we have limited understanding of how firms choose among the various alliance types available to them. In this article, I examine the governance properties of different alliance types and develop a simplified market-hierarchy continuum of alliances. This then forms the basis for an empirical examination of appropriability hazards and governance. Strong support for hypotheses derived from transaction cost theory is provided by analysis of a large sample of interfirm alliances. More hierarchical alliances are chosen when appropriability hazards are severe because technology is difficult to specify or because the scope of activities is wider, so that monitoring is hampered.
