Article by Petter, Stacie; Straub, Detmar, and; Rai, Arun (2007) in MIS Quarterly, 31:4.
In the previous entries, I have posted my notes on two articles pertaining to construct development, i.e. Law, et. al. ( 1998 ) and Henri ( 2008 ). This entry is the third one. For better understanding, I would like to advise readers to read this article first, followed by Law et. al. ( 1998 ) and lastly Henri ( 2008 ).
If I was given a chance to teach research methodology for design and social science, I would make it compulsory to all my students to read this article together with the one by Law et. al. Both articles described the fundamental knowledge and the essential basics in developing or conceptualizing a construct.
The first most important point of discussion in this paper is about distinguishing two types of construct, i.e. formative and reflective. I have summarized the different characteristics between them in the following table for easy understanding.
The next point is about the effect of misspecification of formative construct on type I and type II errors. It is worth to note here that misspecification of measurement model would lead to measurement error, which in turn affect badly the structural model. Thus, it would increase the potential for both type I and type II errors, which no doubt would make the research findings equivocal.
The authors used simulation technique (as extension of earlier simulation done by Jarvis et. al. & MacKenzie et. al.), where the result had revealed the combination of characteristics of formative constructs that would possibly cause the type I and type II errors. Those combinations of characteristics are as follow.
Combination of characteristics that may cause type I error:

Formative construct is endogenous

Structural path emanates from formative construct

Sample size is high (i.e., 500)

Moderate to high correlation among formative measures/items (i.e., 0.4 or higher interitem correlations)

Can occur regardless of whether the model is specified correctly (i.e. formative) or incorrectly (i.e., reflective).
Combination of characteristics that may cause type II error:

Formative construct is endogenous

Structural path leads to formative construct

Sample size is low (i.e., 250)

Moderate to high correlation among formative measures (i.e., 0.4 or higher interitem correlations)
 OR 

Formative construct is endogenous

Structural path leads to formative construct

Sample size is high (i.e., 500)

High correlation among formative measures (i.e., 0.7 or higher interitem correlations)
Another important contribution of this paper is the recommendation on steps (decision rules) to be taken in identifying formative constructs. The authors had put the steps in a well organized table, so that readers can understand it easily. Here is the table: