the transactions cost approach to vertical integration an empirical examination the transactions cost approach developed by coase and williamson provides a coherent framework for investigating the determinants of vertical integration in different industries empirical implications are developed and then tested using a cross section of firm level data pooled over different time periods the results tend to confirm hypotheses regarding the internal costs of management small numbers bargaining problems and the notion of the firm as suited to adaptive sequential decision making under conditions of uncertainty it rhile there exists an extensive literature on vy theoretical rationales for vertical integration surprisingly little is known about the importance of the different theories the empirical literature includes two types of studies case studies test the applicability of a particular theory to a single firm or industry e g armour and teece 1980 perry 1980 or monteverde and teece 1982a they are susceptible to bias in their choice of industry and the generality of their results cannot be established another category of studies examines a broad base of industries to determine the relationship between vertical integration and such variables as industry concentration average firm size and sales growth e g adelman 1955 gort 1962 and tucker and wilder 1977 the link between these studies and theories of vertical integration is generally left unclear 2 this study will adopt the strategy of investigating a broad base of industries but unlike earlier studies of this type will test empirical implications following from the transactions cost approach 3 this approach as developed by coase 1937 and williamson 1975 1979 provides a coherent framework for investigating determinants of vertical integration over different industries furthermore williamson has persuasively argued that transactions cost considerations underlie such prominent reasons for vertical integration as the elimination of monopoly distortions technical complementarities supply reliability and economies in the acquisition of information the transactions cost approach is summarized and implications are developed in the first section of this paper the implications are tested using firm level data pooled over time the empirical model is presented in the second section and the results are presented in the third section the model incorporates variables not included in previous studies of vertical integration such as measures of market risk and organizational structure the results tend to confirm hypotheses regarding internal costs of management small numbers bargaining problems and the notion of the firm as an institution suited to adaptive sequential decision making a summary of the results and conclusions are contained in the final section i the transactions cost approach arrow 1969 has defined transactions costs as the cost of organizing the economic system in attempting to translate this idea into a framework for explaining the organization of economic activity williamson and others have focused on the role of opportunism and the limited capability of individuals in processing information the choice of institutional alternative depends on minimizing the costs which arise in the presence of transaction specific investments and uncertainty while a wide variety of institutional alternatives exist a simple dichotomy is adopted here for the sake of tractability following coase transactions are classified according to whether they take place in the firm or across markets market alternatives become hazardous in recurring exchanges involving transaction specific capital and efficient information processing the firm then provides a received for publication november 21 1983 revision accepted for publication december 3 1984 rutgers university this paper is based on my dissertation i would like to thank my committee armen alchian harold demsetz david mayers fred weston and my chairman benjamin klein for their helpful comments recent versions of the paper also benefited from comments made by k chung d carlton d kaserman and anonymous referees i would also like to thank participants of the transactions cost workshop at the university of pennsylvania the usual disclaimer applies 1 recent summaries of the theoretical literature on vertical integration are in warren boulton 1978 and kaserman 1978 see levy 1981 1984 for discussion of this problem 3earlier studies by armour and teece 1980 and monteverde and teece 1982 a b have successfully employed the transactions cost approach to examine vertical integration in particular industries this study differs in that it adopts the transactions cost approach to test implications across industries

international stock market linkages evidence from the pre and post october 1987 period abstract this paper uses recent developments in the theory of cointegration to provide new methods of testing the linkage and dynamic interactions among stock market movements our findings are in sharp contrast with previous research which discovered strong interdependence among national stock markets prior to october 1987 for the post october 1987 period however our results show that the degree of international co movements among stock price indices has increased substantially with the nikkei index the only exception furthermore the us stock market is found to have a considerable impact on the french german and uk markets in the post crash period we also find the response of the french german and uk markets to us stock market innovations to be consistent with the view of cross border informationally efficient stock markets finally we find the japanese equity market performance to have no links with both the us stock market and the stock markets in france germany and uk during the pre and post october crash period

the underdetermined knowledge based theory of the mnc in this note we revisit two core propositions of the knowledge based view of the firm found in the seminal work of kogut and zander 1 that multinational corporations mncs exist because transfers and re combinations of knowledge occur more efficiently inside mncs than between mncs and third parties and 2 that the threat of opportunism is not necessary although it may be sufficient to explain the existence of the mnc their knowledge based view shifted the conceptualization of the firm from an institution arising from market failure and transaction costs economizing to a progeny of superior knowledge governance we question these conclusions arguing that firms are but one of the many types of epistemic communities possessing and nurturing procedural norms identity and the cognitive linguistic and reflexive attributes conducive to efficient exchange and re combination of knowledge among their members important insights may be gained by applying the concept of epistemic communities implicit in the knowledge based perspective beyond firm level hierarchies journal of international business studies 2011 42 427 435

knowledge market failure and the multinational enterprise a reply debate is an indication that an issue warrants discussion the comments of james love and donald mcfetridge in this issue are fine statements that articulate a received wisdom their comments differ with each other and these differences remind us that there is less consensus in our understanding of internalization and transaction costs than commonly supposed if we do not address all of the commentators specific points it is not for lack of appreciation but because it is our belief that a fuller vision of the terrain already mapped and that which is yet uncharted would provide a more useful basis for exploration and discovery a listing of issues is the task of a referee while a published debate might perform a useful task by laying out the contours of the research tradition and future

bargaining in a network of buyers and sellers abstract we analyze bargaining between buyers and sellers who are connected by an exogenously given network players can make repeated alternating public offers that may be accepted by any of the responders linked to each specific proposer our purpose is to find the conditions of the network which drive the price distribution in equilibrium this paper uses graph theory tools to provide necessary and sufficient conditions regarding the architecture of networks for the subgame perfect equilibrium of the bargaining game to coincide with the walrasian outcome

global and regional linkages across market cycles evidence from partial correlations in a network framework using a novel approach partial correlations within a complex network framework we examine the degree of globalization and regionalization of stock market linkages and how these linkages vary acro

the meaning of death some simulations of a model of healthy and unhealthy consumption simulations of a model of healthy and unhealthy consumption are used to investigate the impact of various terminal conditions on life span pathways of health related consumption and health a model in which life span and the death stock of health are fixed is compared to versions in which i the death stock of health is freely chosen ii life span is freely chosen iii both the death stock of health and life span are freely chosen the choice of terminal conditions has a striking impact on optimal plans results are discussed with reference to the existing demand for health literature and illustrate the application of iterative processes to determine optimal life span the role played by the marginal value of health capital in determining optimal plans and the importance of checking the second order conditions for the optimal choice of life span

the ownership advantage in latin american fdi a sectoral study of us direct investment in mexico this article develops a model which tests the hypothesis that sectoral fdi flows from the united states to mexico over a four year period can be explained by the ownership advantages of us multinationals theoretical developments in the concept of ownership advantage are used to guide the formulation of the research the findings suggest that direct investment into us mnes affiliates in mexico is driven by benefits derived from embedded human knowledge technology embodied advantages and possibly from scale advantages local r d is negatively associated with fdi

the determinants of cross border equity flows abstract we explore a new panel data set on bilateral gross cross border equity flows between 14 countries 1989 1996 we show that a gravity model explains international transactions in financial assets at least as well as goods trade transactions gross transaction flows depend on market size in source and destination country as well as trading costs in which both information and the transaction technology play a role distance proxies some information costs and other variables explicitly represent information transmission an information asymmetry between domestic and foreign investors and the efficiency of transactions the geography of information is the main determinant of the pattern of international transactions while there is weak support in our data for the diversification motive once we control for the informational friction we broaden the scope of our results by presenting some evidence linking the results on equity transactions to equity holdings

international market correlation and volatility international correlations for stocks and bonds fluctuate widely over time as previous studies have found volatility appears to be contagious across markets in addition international correlation increases in periods of high market volatility although the correlation of individual foreign stock markets with the u s stock market has generally increased slightly over the past 37 years it has not increased during the past 10 years similarly the international correlation of bond markets increased in the early 1980s but it has had no discernible trend in the past 10 years the fairly low levels of international correlation among stocks or bonds suggests that national factors still strongly affect local asset prices the link between correlation and market volatility is bad news for global money managers because when the domestic market is subject to a strong negative shock is when the benefits of international risk diversification are needed most

integration of the sales force an empirical examination this article develops and tests a model of integration of a marketing function personal selling the model derived from transaction cost analysis as developed principally by williamson is formulated as a logistic function which is estimated with data from the electronic components industry as expected integration is associated with increasing levels of asset specificity difficulty of performance evaluation and the combination of these two factors contrary to the transaction cost model neither frequency of transactions nor interaction of specificity and environmental uncertainty is significantly related to integration the transaction cost model improves significantly upon the fit of a simple model relating integration to company size alone these results suggest that for studying transactions of this kind it is fruitful to view the firm as a governance structure

vertical integration in the u s auto industry a note on the influence of transaction specific assets abstract recent refinements in the theory of the firm suggest that organization form may be sensitive not only to the degree to which assets are specific to a transaction but also to the type of capital employed this paper reports evidence regarding the relative influence of transaction specific investments in physical and human capital on the pattern of vertical integration using new data obtained directly from u s auto manufacturers the results support the proposition that investments in specialized technical know how have a stronger influence than those in specialized physical capital on the decision to integrate production within the firm

knowledge transfer capacity and its implications for the theory of the multinational corporation this study updates and extends research on foreign entry modes by examining the impacts of knowledge transfer capacity and knowledge tacitness research on international corporate expansion has long emphasized that deploying intangible knowledge based assets is required for successful international expansion more recently research from a knowledge based perspective has addressed the role of tacitness in constraining a firm s ability to transfer knowledge internationally we combine these perspectives to describe how knowledge tacitness affects the relative suitability of four archetypal entry modes exporting licensing establishing an alliance and wholly owned entry we then examine and develop conceptually a seldom studied firm characteristic knowledge transfer capacity we offer predictions that describe the combined effects of knowledge tacitness and transfer capacity on entry mode choice we distinguish between the transfer capacity of the organization that develops knowledge source transfer capacity and that of the organization that seeks to access that knowledge recipient transfer capacity the discussion addresses how our model generalizes to knowledge seeking strategies and to the study of ongoing multinational networks the study enriches and reconciles multiple theoretical perspectives on entry strategy it brings together the study of knowledge characteristics and firm heterogeneity in the theory of the multinational corporation and in international and strategic management more generally journal of international business studies 2003 34 356 373 doi 10 1057 palgrave jibs 8400037

internalization and the mne a note on the spread of ideas this paper examines the reasons for the impact of buckley and casson s the future of the multinational enterprise 1976 on research in international business ib earlier work concentrated on ownership specific advantages or locational determinants rather than the central concept of internalization the few exceptions were incomplete or not well known internalization as applied to the mne spread rapidly because of the appeal to ib researchers of an analytically powerful idea that was based on institutional economics and involved an accessible methodology the spread was also helped by the parallel growth of transaction costs in the domestic theory of the firm and the publication activity of the authors and their associates

knowledge market failure and the multinational enterprise a comment the purpose of this note is to comment briefly on two papers published in this journal kogut and zander 1993 and love 1995 kogut and zander k z argue that market failure is not necessary to explain the existence of multinationals or indeed any firm love argues that the existence of a firm necessarily reflects a market failure but that opportunism is not necessary for market failure to occur i have problems with the logic of both papers

transactions cost economics and the multinational enterprise an assessment abstract this paper applies transactions cost principles to the multinational enterprise in order to ascertain its distinctive properties as a mode of economic organization the analysis helps identify just when and where contractual alternatives to the multinational firm are likely to be viable this turns out to depend upon the nature of the technology the regime of appropriability within which the firm operates and the characteristics of the markets in question transactions cost analysis is also extended to the multinational enterprise host country relationship implications for management and public policy are derived

knowledge market failure and the multinational enterprise a theoretical note this article offers a critique and extension of recent work by bruce kogut and udo zander kogut and zander are correct to argue that opportunism is unnecessary to explain the existence of the multinational but wrong to infer that this indicates an absence of market failure they have identified an important class of transaction costs and market failure which arises in the absence of opportunism but do not cat doubt on the market failure approach to the theory of the multinational their argument that they have identified an important source of ownership advantage is unconvincing and is not supported by the empirical evidence however kogut and zander s work is of considerable significance but in areas different from those that they highlight

european financial market dependence an industry analysis this paper uses a copula model to investigate the degree and determinants of european market dependence across 10 industries in 12 euro zone and 8 non euro zone stock markets during the period 1992 2011 most of the industries in euro countries show a dependence increase with the euro area after the introduction of the euro the effects are strongest in countries with larger market capitalization and in the financials industrials consumer goods utilities technology and telecommunications industries overall the export intensity interest rate sensitivity and competitiveness of an industry and the financial development and economic openness of a country are the most important determinants of changes in equity market dependence the period around the lehman collapse also shows higher equity market dependence between european countries while the lower dependence increase during the period of the recent european sovereign debt crisis suggests that country specific factors may matter more than before

heterogeneity stratification and growth macroeconomic implications of community structure and school finance this paper examines how socioeconomic stratification and alternative systems of education finance affect inequality and growth agents interact through local public goods or externalities school funding neighborhood effects and economywide linkages complementary skills knowledge spillovers sorting families into homogeneous communities often minimizes the costs of existing heterogeneity but mixing reduces heterogeneity faster integration therefore tends to slow down growth in the short run yet raise it in the long run a move to state funding of education presents society with a similar intertemporal trade off local and global complementarities play major roles in determining the efficient social and educational structures copyright 1996 by american economic association