cost reduction competition and industry performance in many markets firms compete over time by expending resources with the purpose of reducing their costs sometimes the cost reducing investments operate directly on costs in many instances they take the form of developing new products that deliver what customers need more cheaply therefore product development can have the same ultimate effect as direct cost reduction in fact if one thinks of the product as the services it delivers to the customer in the way that lancaster pioneered then product development often is just cost reduction

cooperative and noncooperative r d in duopoly with spillovers contrary to the usual assumption made in most oligopoly models relations among firms are seldom of a wholly cooperative or noncooperative type in many situations they compete in some fields while they cooperate in others an important example is the case of cooperative research efforts bringing fierce competitors together two types of agreement are observed first r d cooperation can take place at the so called precompetitive stage companies share basic information and efforts in the r d stage but remain rivals in the market place 1 a second type of agreement involves an extended collusion between partners creating common policies at the product level the usual justifications of this extension are the difficulties of protecting intellectual property the idea is then to allow partners who have achieved inventions together to also control together the processes and products which embody the results of their collaboration in order to recuperate jointly their r d investments 2 what could be expected from these types of agreement is a reduction in r d expenditures because of less wasteful duplication and a reduction of total production because of more reprinted from the american economic review 78 5 1133 1137 1988 center for operations research econometrics 1348 louvain la neuve belgium we are grateful to jean

production costs scope economies and multi client outsourcing under quantity competition abstract two game models are developed based on production costs and scope economies to investigate the widely observed multi client outsourcing mco phenomenon analytical results demonstrate that outsourcers high in house production costs and the advantage of scope economies motivate firms to outsource collectively to an independent vendor under certain conditions if both firms make their outsourcing decisions simultaneously collective outsourcing is one of the two equilibria if both firms make decisions sequentially collective outsourcing becomes the unique equilibrium furthermore the comparative statics of the critical degree of scope economies are examined for the occurrence of mco with regard to diverse market parameters finally it is proved that market prices decrease as the degree of scope economies increases when mco occurs this research helps explain some widely observed phenomena such as malls supply chain cities and the china price

over my dead body bargaining and the price of dignity concerns of pride dignity and the desire to keep hope about future options often lead individuals and groups to walk away from rea sonable offers try to shift blame for failure onto others or take refuge in political utopias costly impasses and conflicts result such as trials divorces strikes the scapegoating of minorities for economic hardships and wars a key and puzzling aspect of these processes is the role played by wishful rationalizations and delusions as attested by field observers e g truman f bewley 1999 in the context of labor relations kevin woods james lacey and williamson murray 2006 in that of war as well as controlled experiments leigh thompson and george loewenstein 1992 and linda c babcock et al 1995 thus demonstrate how subjects in bargaining situations with common knowledge spontaneously generate through self serving processing and recall of the same evidence divergent beliefs about the fairness of their cause and wishful predictions of outcomes and how these are associated to costly delays and disagreements

meta paradigm change and the theory of the firm many seemingly unrelated debates on the theory of the firm are in fact part of a single deeper transformation of the social sciences as the foundational assumptions of 20th century social science have slowly been shown by science to be false new sub paradigms have emerged which cumulatively drop i theoretical assumptions about markets to explain firms ii epistemological assumptions about knowledge to explain diversity and iii metaphysical assumptions about causality to explain technical change debates occur across each of these levels

expanding the solution set organizational economics and agri environmental policy abstract the market failure paradigm dominates agri environmental research and policy organizational economics provides an alternative framework for analyzing agri environmental problems and points to alternative solutions in this paper the traditional approach of creating markets for environmental goods and services is critiqued and set aside to provide space for an organizational analysis from an organizational perspective the relationship between the state and agricultural agents is viewed as grounded in an over arching exchange relationship including elements of cooperation and trust such a collaborative exchange relationship may prove useful in supporting exchange between agricultural agents and the state leading to the provision of ecological goods and services highlighting the potential of organizational economics the analysis suggests that agri environmental research and policy go further in accounting for and investigating the unique organizational modes of exchange governing the production of food fiber and ecological goods and services

the new institutional economics this outstanding book presents new original contributions from some of the world s leading economists including ronald coase douglass c north masahiko aoki oliver e williamson and harold demsetz it demonstrates the extent and depth of the new institutional economics research programme which is having a worldwide impact on the economics profession

markets hierarchies and information on a paradox in the economics of organization abstract the literature on the economics of organization presents the following paradox on the one hand firms are said to be repositories of superior information about input characteristics on the other hand markets are said to be superior to hierarchies in coordinating resource allocation because hierarchies are forced to aggregate heterogeneous inputs into homogeneous categories this paper suggests reasons for the association of firms with refined input information and argues that it is not their hierarchical features but their provision of an appropriate framework for rent sharing that is responsible for this association

strategic trade policy intellectual property rights protection and north south trade abstract in this paper we analyze the issue of optimal tariffs when the northern and southern firms compete in quantities in an imperfectly competitive northern market and there are potentially varying degrees of intellectual property rights ipr violation by the south ipr violation is reflected through the leakage of technological knowledge spillovers from the northern to the southern firm creating unit cost reduction it is shown that optimal tariffs in this framework are always higher than in the simple duopoly model since they serve here not only as profit shifting devices but also as instruments that influence domestic innovative activity generate scale economies and countervail the ipr violation of the south the other notable difference from the standard duopoly model is that positive tariffs may be desirable from the world welfare point of view

power competition and the free trader vulgaris competition is taken for granted by neoclassical economics its cause is human nature and its functioning is the result of spontaneous interactions as such it is contrasted with power which is an unnatural restriction on human liberty by contrast marx discusses competition as a coercive mechanism historically competition develops with the development of market relations and what today appears as human nature is part of this process thus it is within competition and not outside of it that marx explains the coercive nature of capitalism his critique shows that competition and power appear to be antithetical because market relations are based on individual freedom however class relations are another essential aspect of capitalism by neglecting these relations neoclassical economists including those of a radical inspiration implicitly espouse the ruling class s viewpoint which they simply translate into rigorous mathematical terms in this sense they are the modern expression of what marx called the vulgar political economy

the transaction costs paradigm 1998 presidential address western economic association 1998 presidential address western economic association though the idea can be traced to david hume and adam smith the path breaking first economic analysis of transaction costs did not occur until 1937 when ronald coase published the nature of the firm 1 stigler and boulding perspicaciously reprinted coase s paper in the famous aea readings in price theory 1952 but for a quarter of a century it had no real impact on the profession in the 1940s two significant works were published which touched on transaction costs but these sparks did not ignite a fire 2 the transaction costs paradigm began to blossom in the early 1960s again it was coase who supplied the primum mobile his great paper on social cost was published in early 1961 though aaron director dated that issue of journal of law and economics as 1960 ronald had company this time george stigler s article on information cost came out later the same year and kenneth arrow s work on the appropriability of returns to inventions appeared in 1962 3 the combined wisdom of three brilliant men would perhaps not have been enough except that by the early 1960s science was on their side jargonistic articles on economic development flooded the journals throughout the 1950s but by 1960 economists were beginning to question the explanatory power of this kind of economics after the clarion call of friedman s work on the consumption function a few years earlier in 1957 the great methodological debate began 4 the demand for testable implications was becoming more vociferous by the day and the tendency for economists to be policy oriented was losing hold as the keynesian revolution waned 5 the tide of economic explanation was beginning to swell and the transaction costs paradigm was the beautiful goddess who emerged from the foam i began graduate work at ucla in 1961 and after my ma a year later i turned to audit the price theory lectures of jack hirshleifer and armen alchian the straight as student who knew by heart everything about market imperfections was told that this kind of knowledge did not count by 1963 graduate students at ucla s department of economics were all talking property rights and transaction costs now i knew coase and stigler by heart and could even handle the questions on pricing behavior and mergers at the end of friedman s price theory 1962 moreover i was the luckiest of the lot because in late 1963 armen gave me a copy of a manuscript by harold demsetz 6 one of the great expositors of our time harold wrote about property rights and transaction costs with such clarity and force that i decided then and there to work on these topics for my doctorate since that time my research has all been on the same track in this address i shall confine discussion of the transaction costs paradigm to my own involvement this limitation is imposed by necessity i like to sail the strange seas of thought alone and have seldom read other people s publications with the seriousness they deserve after i left chicago in 1969 from 1976 to 1982 i spent my time on contracts in the petroleum industry and from 1982 to now my research has concentrated on economic reforms in china although these works are all transaction costs oriented the former is not in print because it is proprietary while the latter has mostly been published in chinese after more than half a lifetime on the seashore however i feel it is time to share my small collection of pebbles with colleagues in the wea still you would not be wrong if you feel that i am addressing the subject as if i were a stranger returning from another planet i the nature of transaction costs transaction costs must be defined to be all the costs which do not exist in a robinson crusoe economy this broad definition is necessary because it is often impossible to separate one type of transaction cost from another the toll collector of a bridge serves not only transacting customers but also police against trespassers

trade and foreign investment policies under imperfect competition lessons for developing countries abstract the 1980s saw the emergence of a large literature on the role of trade policy in market structures characterized by imperfect competition this paper contributes to that literature by providing a unified treatment of the effects of trade and foreign investment policy under imperfect competition using a model easily accessible to non specialists we examine the circumstances under which trade and direct foreign investment dfi are immiserizing and identify the appropriate forms of intervention by a welfare maximizing government our positive analysis shows how depending on parameter values monopoly or duopoly situations arise as equilibrium market structures possibly involving dfi our normative analysis shows that while free trade and unrestricted dfi may be welfare reducing neither tariffs nor restrictions on dfi are first best instruments to increase welfare the paper concludes with an assessment of the lessons of the new literature for trade and dfi policy formulation in developing countries

intellectual property rights in agriculture and the interests of asian pacific economies this paper describes recent and ongoing processes of technological change in agriculture which has become a highly r d intensive sector in many countries of the asia pacific region it also considers the role of various forms of intellectual property rights iprs in promoting such technological changes and in affecting their diffusion through the region a central part of the discussion is a review of how these various iprs operate and are protected in major economies of the region there is an assessment of the economic interests of key countries including the united states canada australia china japan and the republic of korea in global and regional policy evolution in agricultural iprs these interests are a mix of comparative advantage in farming which is quite distinctive among these countries and the technological basis of production which is more convergent a review of available measures of innovation in the region suggests that all of these economies are active in developing new agricultural technologies although there is considerable specialisation in the types of processes developed given this mix of divergence in comparative costs and convergence in technology interests it is difficult to describe sharply the preferences these economies may have in continued globalisation of agricultural iprs however the analysis points to some areas in which countries may continue to specialise thereby retaining the ability to remain in specific areas of farming and other fields in which international collaboration may be sensible

unforeseen contingencies and incomplete contracts we scrutinize the conceptual framework commonly used in the incomplete contract literature this literature usually assumes that contractual incompleteness is due to the transaction costs of describing or of even foreseeing the possible states of nature in advance we argue however that such transaction costs need not interfere with optimal contracting i e transaction costs need not be relevant provided that agents can probabilistically forecast their possible future payoffs even if other aspects of the state of the nature cannot be forecast in other words all that is required for optimality is that agents be able to perform dynamic programming an assumption always invoked by the incomplete contract literature the foregoing optimality result holds very generally provided that parties can commit themselves not to renegotiate moreover we point out that renegotiation may be hard to reconcile with a framework that otherwise presumes perfect rationality however even if renegotiation is allowed the result still remains valid provided that parties are risk averse

internal bargaining and strategic innovation in the theory of the firm abstract the transaction cost analysis of the firm has identified asset idiosyncrasy and the risk of ex post opportunism as key determinants of organizational form simultaneously several writers have modeled the distribution of quasi rents among input suppliers as a bargaining game these complementary ideas are used to formalize the notion of strategic innovation where capital and labor attempt to redistribute firm income after specialized assets are in place through unilateral modifications in production technology because strategic behavior can enlarge the quasi rent component of fifirm income this process may persist in equilibrium asset idiosyncrasy therefore creates room for an autonomous theory of organizational dynamics partially insulated from events at the market level of analysis

economics of transaction costs saving forestry following the arguments concerning the problems of traditional forest economics in putz 2000 this article shows that transaction cost economics can overcome some of the shortcomings of the main stream forest economics the public forestry subsistence forestry non industrial private forestry china s share holding forestry and their revolutions are analyzed by the relative transaction costs of labor capital land and forest products potential implications of transaction cost economics in forest policy including regulated access to commons sustainable forestry criteria ecological certificates and land tenure decentralization have also been discussed 2001 elsevier science b v all rights reserved

economica coase lecture reference points and the theory of the firm i argue that it has been hard to make progress on coase s theory of the firm agenda because of the difficulty of formalizing haggling costs i propose an approach that tries to move things forward using the idea of aggrievement costs and apply it to the question of whether a transaction should be placed inside a firm in house production or in the market place outsourcing

assisting domestic industries under international oligopoly the relevance of the nature of competition to optimal policies optimal trade and industrial policies are derived for a home market that is supplied by a domestic firm and a foreign firm the optimal policy combination can be quite sensitive to the nature of the duopoly s competition for example for some cost and demand s tructures the optimal policy under cournot competition consists of a domestic production tax and a tariff but that under bertrand compet ition consists of a production subsidy and free trade copyright 1988 by american economic association

the entrepreneur s reward for self policing the collaboration among people is often subject to shirking the net gain from the collaboration depends on the contract governing it i argue that the entrepreneur assumes the role of the residual claimant because his actions are more costly to monitor than those of the factors with which he collaborates by offering fixed pay contracts to others and himself becoming residual claimant the entrepreneur curtails his incentive to gain at the expense of his partners and the net gain from the collaboration is then maximized costly monitoring applies to both labor and capital and thus the entrepreneur may supply both labor services and capital the entrepreneur s capital serves to guarantee the pay of the other factors

why corporations insure corporations insure to reduce the shirking information problem of joint production insurance encourages specialization in ownership increasing the returns to monitoring and lowering shareholders demand for a more diversified portfolio it enhances the credibility of specific capital as a performance bond and it lowers the cost to shareholders of compensating other members of the team for investing in firm specific assets tax and other factors may further encourage individual corporations to insure

the reference point approach to the theory of the firm an introduction there is a small but growing literature on the reference point approach to incomplete contracts as formulated by hart and moore the reference point approach has begun to be applied to the theory of the firm in 3 recent papers this introduction reviews the main theoretical aspects of each of these papers it then discusses the relationship between the reference point approach to the firm the transaction cost approach and the property rights approach here it is argued that the reference point approach is a step back towards ex post inefficiencies away from reliance on ex ante inefficiencies

anti williamson a marxian critique of new institutional economics new institutional economics explains capitalist institutions by means of neoclassical tools this method consists of introducing non market institutions as solutions to market failures the explicit or implicit assumption is that in the beginning there were markets in this paper we criticise this conception inherited from neoclassical economics by focusing on williamson s theory first we discuss williamson s speculative method which idealises the market and presents it as natural and universal we then suggest that williamson s categories his method and conception are themselves products of bourgeois ideology in this sense we conclude williamson himself is ultimately an institution of capitalism

nash equilibrium and welfare optimality if is a set of social alternatives a social choice rule scr assigns a subset of a to each potential profile of individuals preferences over a where the subset is interpreted as the set of welfare optima a game form or mechanism implements the social choice rule if for any potential profile of preferences 1 any welfare optimum can arise as a nash equilibrium of the game form implying in particular that a nash equilibrium exists and 2 all nash equilibria are welfare optimal the main result of this paper establishes that any scr that satisfies two properties monotonicity and no veto power can be implemented by a game form if there are three or more individuals the proof is constructive

intellectual property rights violations and spillovers in north south trade abstract the article examines the role of technological spillovers when northern and southern firms compete in quantities on the common world market and when only the northern firm is supposed to conduct innovative activity the intensity of spillovers is interpreted as an indicator of the strength of intellectual property rights ipr protection in this light the paper reconsiders the questions raised in the recent economic analysis of ipr protection in north south relations when and whether the southern countries benefit in welfare terms from protecting ipr how the north fares in this story how large is the conflict between the north and south and what is the optimal level of ipr protection at the world level the paper shows that the common belief that the south generally benefits from relaxing ipr protection while the north is worse off does not carry over in the applied duopoly model with spillovers in this respect the congruence of interests between north and south with respect to southern ipr protection regime should not be an exceptional or even impossible state of affairs

on the design of hierarchies coordination versus specialization we consider an economy that has to decide how assets are to be used agents have ideas but these ideas conflict we suppose that decision making authority is determined by hierarchy each asset ha

the political economy of international trade essays in honour of robert e baldwin part 1 theory of trade policy with imperfect information avinash dixit strategic trade policy and the new international economics a critical analysis gottfried haverlay the role of services in production and international trade a theoretical framework ronald w jones and henry kierzkowski the coefficient of trade utilization back to the baldwin envelope james e anderson and j peter neary part 2 trade policy issues reflections on uniform taxation arnold c harberger intellectual property rights and north south trade judith c chin and gene m grossman optimal tariff retaliation rules david f burgess international trade in capital and capital goods rachel mcculloch and j david richardson part 3 political economy of trade policy asymmetries in policy between exportables and import competing goods anne d krueger trade policy development and the new political economy gerald m meier does 1992 come before or after 1990 on regional versus multilateral integration andre sapir part 4 empirical studies of trade issues the structure and effects of tariff and non tariff barriers in 1983 edward leamer a computational analysis of alternative safe guards of policy scenarios in international trade alan v deardorff and robert m stern direct foreign investments and trade in east and southeast asia seiji naya

cooperative and noncooperative r d in an oligopoly with spillovers this paper examines the positive and normative effects of cooperative r d whereby member firms commit themselves to the joint profit maximizing level of r d in a precompetitive stage but remain fierce competitors in the product market vis a vis noncooperative r d socially first best r d and socially second best r d in the presence of sufficiently large r d spillovers neither noncooperative nor cooperative equilibria achieve even second best r d levels in the absence of spillover effects however while the cooperative r d level remains socially insufficient the noncooperative level may overshoot first and second best levels of r d copyright 1992 by american economic association

a theory of market transition from redistribution to markets in state socialism state socialist redistributive economies are characterized by the allocation and distribution of goods through central planning this paper develops a theory of market transition which argues that in reforming socialist economies the transition from redistributive to market coordination shifts sources of power and privilege to favor direct producers relative to redistributors the shit improves incentives for direct producers stimulates the growth of private markets and provides to entrepreneurs an alternative path for socioeconomic mobility a set of hypotheses test the market transition theory with householdand village level data

markets as institutions versus organizations as markets disentangling some fundamental concepts abstract this paper argues that ambiguities in concepts as important as institutions markets and organizations undermine progress of research programs intending to take these components seriously into account after a short review of some current confusions section i section ii discusses recent literature to arrive at definitions that encapsulate fundamental characteristics into pure categories in section iii exceptions and qualifications are introduced so as to operationalize the concepts in the real world 1 i organizations and markets are embedded in an institutional framework and 2 ii they overlap giving birth to hybrid forms however the conclusion contends that it is essential to maintain distinct concepts in order to understand these complex arrangements

moral markets and moral managers revisited in the wake of recent corporate scandals this paper examines the claim made by john boatright that business ethics as it is currently conceived rests on a mistake ethics in business should not be achieved through managerial vision discretion or responsibility rather ethics should shape the design of institutions that regulate business from the outside what ethicists should advocate for according to boatright are moral markets not moral managers i explore the empirical and normative dimensions of his claim with special attention paid to the extent to which boatright s development of the economic theory of the firm supports his position i conclude by suggesting some reasons why moral markets and moral management are compatible frameworks for corporate reform

getting ahead in urban china this article argues that structural segmentation is a universal phenomenon in all complex societies and across political economies each political economy uses specific criteria in delineating segments of its economic and work organizations furthermore it is argued that segmentation identification constitutes a critical destination status for individuals engaged in the status attainment process a representative sample of the working population in tianjin china is analyzed to show that entrance into the core sectors state agencies and enterprises rather that the job per se constitutes the primary goal of status attainment entering into a more desirable work unit sector in china takes on differential significance and process for males and females formales the direct effect of intergenerational factors i e the effect of father s work unit sector is evident for females such an effect is only indirect instead to a great extent their status attainment also upward occupational mobility acr

a comparison of optimal tariffs and welfare under no lobbying domestic lobbying and domestic foreign lobbying whether and what type of the lobbying induced trade policies can improve the domestic welfare we show that as compared to the case of no lobbying and the case of domestic lobbying the domestic foreign lobbying may achieve the lowest tariff and may also realise the highest welfare for the domestic country our finding provides a theoretical explanation to the prevalent lobbying competition between asian firms and us firms in usa recently we argue that the domestic foreign lobbying may contribute to a freer trade in the domestic country and lobbying competition may be one of the strongest forces pushing for trade liberalisation

a critical assessment of the incomplete contracts theory for private participation in public services the case of the water sector in ghana this paper provides a critical analysis of the recent developments in the incomplete contracts theory and its conclusions for privatisation of public services drawing on a case study of management contract for urban water services in ghana and highlighting the flaws in the theory the article argues that contractual incompleteness does not provide a uniform guidance on efficient forms of ownership we argue that methodological individualism utilised in the theory is particularly ineffective for its application to public services where direct or indirect contractual role of the state cannot be eliminated the sterility of the theory with respect to political institutional and distributional context of public service delivery is identified as an important weakness copyright oxford university press

an analysis of cooperative research and development i analyze the effects of cooperative research whereby member firms agree to share the costs andfruits of a research project before they undertake it in this model industrywide agreements tend to have socially beneficial effects when the degree ofproduct market competition is low when there are r d spillovers in the absence of cooperation when a high degree of sharing is technologically feasible and when the agreement concerns basic research rather than development activities i show that a royalty free cross licensing agreement among any number offirms lowers the equilibrium level of innovation even though it increases the efficiency of r d through sharing

contracts and asymmetric information in the theory of the firm abstract this paper extends the coase notation of firms as intermediaries between consumers and input owners to incorporate asymmetric information we show that in some cases it is optimal for consumers to pay a fixed price for a product and to ignore how the firm operates and the profit that it makes if firms have private information that consumers cannot cheaply obtain however we demonstrate that the optimal contract may require constraints on firms internal operations and profits our work provides conditions under which cost plus contracts are optimal and demonstrates when nonprofit firms are the preferred organization structure

contracts entrepreneurs market creation and judgement the contemporary mainstream theory of the firm in perspective this survey gives an overview of the theory of the firm as it is formulated within the contemporary mainstream of economics two groupings of theories are briefly discussed principal agent and incomplete contract models next three of the most recent contributions regarding firms are considered the reference point approach is looked at first followed by a discussion of spulber s book the theory of the firm last we consider the entrepreneurial judgement perspective

social inequalities in reforming state socialism between redistribution and markets in china this article extends market transition theory to an analysis of inequality under the conditions of partial reform in china logit regression analysis indicates cadres officials have no greater odds than other households of being among the privileged or avoiding poverty entrepreneurs andformer team cadres however are advantaged despite the rise of a hybrid elite of entrepreneurs who are currently cadres that capitalizes on redistributive power to gain competitive advantage in the marketplace increases in income inequality are modest when market reform stimulates improved economic performance the poor appear to benefit and experience comparable improvements in household income as a result there is only a slight increase in inequality at least in the early stages of market reform the empirical analysis is based on survey data collected in rural china in 1985

hierarchies markets and power in the economy an economic perspective this paper adopts the transaction cost economics perspective for purposes of examining hierarchies markets and power in the economy transaction cost economics works out of an economizing perspective in which markets and hierarchies are alternative modes of governance and the object is to ascertain which transactions go where and why the role of power in this setup is strictly limited partly because power tends to be myopic transactions are not examined in their entirety and partly because it is tautological power needs to be operationalized whereupon the refutable implications that accrue to this perspective can be derived copyright 1995 by oxford university press

incomplete contracts the hold up problem and asymmetric information abstract given symmetric information in a standard hold up problem a buyer s investment incentives are always increasing in his bargaining power while this result is robust under one sided private information it can be overturned under two sided private information

post walrasian and post marxian economics it is widely believed that the failure of the socialist experiment should have had a devastating effect on radical economics yet radical economics is not only alive and well but flourishing years before the official demise of marxist socialism they had broadened their critique of standard economics well beyond the received marxist literature indeed their arguments offered striking parallels with the mainstream critiques of walrasian economics provided by the newly developing strand of thought i shall refer to as information economics in walrasian economics information is free moreover there are no costs associated either with making or enforcing contracts but with imperfect and costly information and incomplete risk markets the field of information economics has established that 1 in general markets are not constrained pareto efficient 2 markets may not clear 3 markets may not exist or when they exist may be thin 4 rents are pervasive and indeed reputation rents are necessary to ensure that high quality products get produced that workers do not shirk and so on 5 even when there are many participants in a market competition may be highly imperfect and 6 the distribution of income matters for economic efficiency

welfare effects of global patent protection this paper uses a simple model of invention and patent protection to examine the welfare effects of extending patent protection from the country where invention takes place to another country that is only a consumer of invented products it is shown that while the welfare of the inventing country certainly rises with the extension of patent protection that of the other country probably falls and may well fall by more than the increase in welfare of the inventing country in particular as patent protection is extended to a larger and larger portion of the world the effect on the welfare of the world as a whole of extending it to the rest of the world becomes negative

the degree of spillovers and the number of rivals for maximum effective r d abstract the amount of cost reduction or effective r d that results in a symmetric sequential nash equilibrium with quadratic payoffs and differentiated goods is shown to increase with spillovers in oligopolies with a few rivals and to achieve a maximum for spillovers that are not perfect in industries with many firms similar tendencies apply for consumer surplus profits and static welfare more rivals typically lead to reduced investments output and profitability while consumer surplus and welfare increase or at least do not decrease limited entry in markets with a few rivals may enhance innovative investments profitability and consumer surplus if only product differentiation and spillovers are sufficiently high and r d costs sufficiently low too many rivals will then again lead to reductions and a decrease in static welfare

welfare impacts of cross country spillovers in agricultural research the welfare implications of intellectual property protection ipp for private sector agricultural research are analyzed focusing on the realistic cases where countries provide different ipp levels technology spills over across countries and the public sector is involved in research a model is developed to determine who benefits from and who should pay for the associated research the article contains some interesting results on the implications of a harmonization of ipp policies through multilateral agreements or via technology that allows research firms to prevent the copying of plants and animals that express traits that have emerged from their research

intellectual property rights and the mode of technology transfer abstract transferring technology in an environment where patent protection is uncertain can pose significant risks to an innovating firm s ability to appropriate rents this paper incorporates asymmetric information in a screening game where the innovating firm has the choices of licensing a new product at arm s length to a foreign firm exporting it or licensing it to a subsidiary subsidiary production avoids the risk of imitation but involves higher costs for the innovating firm the gains to the southern country from the lack of intellectual property right protection may be offset by strategic behavior by northern firms who opt for technology transfer via subsidiary or monopoly production

partial reform and the chinese bureaucracy in the post mao era using 1987 survey data of 988 bureaucrats in eight large cities i examine the effect of the recent economic reform on the chinese bureaucracy the distribution of bureaucrats in different types of organizations jobs hierarchical positions and bureaucratic compensation the results show mixed characteristics of the chinese bureaucracy in the partial reform where market and planning competence and political loyalty coexist there is evidence of the continuing dominance of the party state on bureaucratic personnel management on the other hand significant changes took place in the selection criteria and to a lesser extent in the institutional structure as evidenced in the promotion patterns and bureaucratic compensation these results point to the evolving organizational basis of state socialism in the transition process

financial planning where the firm s demand for funds is nonstationary and stochastic the incentive for a firm to engage in planning prearranging for its future financing derives from the interaction of uncertainty concerning the amount and timing of future needs and the cost of negotiating and terminating contracts in capital markets three conditions on relative costs and probability distributions are identified under which no financial slack should be raised if those conditions are not met then under one set of reasonable assumptions the optimum amount of slack will be more than the largest possible future need the model allows for surprises which can cause upward or downward in contrast to eoq models revisions in the future regarding the optimal level of slack to continue to carry

heterogeneity of southern countries and southern intellectual property rights policy we develop a model with one innovating northern firm and heterogeneous southern firms that compete in a final product market we assume southern firms differ in their ability to adapt technology and study southern incentives to protect intellectual property rights we find that in a non cooperative equilibrium governments resist ipr protection but collectively southern countries benefit from some protection we show that in general countries with more efficient firms prefer higher collective ipr protection than those with less efficient firms given the aggregate level of ipr protection it is more efficient if the more efficient countries have weaker ipr protection les auteurs developpent un modele dans lequel coexistent une entreprise innovatrice du nord et des entreprises heterogenes du sud qui se concurrencent dans un marche de produit final on postule que les entreprises du sud different dans leur capacitea adopter la technologie et on etudie les differentes incitations au sud a proteger les droits de propriete intellectuelle dpi il appert que dans un equilibre sans cooperation les gouvernements resistent a la pression pour qu on protege les dpi mais que collectivement ils beneficient de cette protection on montre qu en general les pays dont les entreprises sont les plus efficaces supportent une protection collective des dpi plus robuste que ne le font les pays dont les entreprises sont moins efficaces le niveau general de protection des dpi etant donne c est plus effectif si les pays les plus efficaces ont des niveaux de protection des dpi plus faibles

property rights and stratification in socialist redistributive economies in socialist economies work organizations differ widely in the compensation they provide employees despite the absence of key product and labor market processes thought to ex plain such inequalities in market economies existing theories of stratification in socialist economies focus on the power and privilege of elites but inequalities among organizations are not created by political particularism or elite power in this paper i sketch elements of an institutional theory of stratification anchored in a conception of property rights the right to derive income from productive assets two aspects of property rights guide the analysis 1 the dispersion of property rights across a hierarchy of governmentjurisdictions and 2 the exercise of these rights by government jurisdictions as they extract revenues primarily through taxation extraction of revenues from a work organization varies with the budgetary resources of a government jurisdiction and the dependence of that jurisdiction on the out puts of the organization variation in revenue extraction in turn creates inequalities among work organizations in their abilities to provide benefits to employees an analysis of survey data on the provision of housing and benefits by work organizations in the large industrial city of tianjin china provides provisional support for these ideas s tudents of communist states have had little reason to dispute lenski s 1966 claim that the distribution of rewards in a society is a func tion of the distribution of power p 63 as ex emplified in szelenyi s wedding of elite theory to institutional economics this idea has been de veloped primarily in terms of the power of class es or occupational groups szelenyi 1978 be gan with the observation that planned economies operate according to redistributive rather than market principles however the process of re

anti dumping and countervailing duties under oligopoly abstract this paper constructs a conjectural variations model of international oligopoly in which the home country s optimal policy responses to the foreign government s subsidies and foreign firms dumping can be calculated some theoretical support is found for tariffs that countervail part of the foreign export subsidy the optimal fraction depends on the size of own and cross effects in demand and on the extent of market competition however no normative case is found for anti dumping duties

a note on countertrade contractual uncertainty and transaction governance in emerging economies this paper develops a conceptual framework for analyzing organizational responses to contractual uncertainty in the context of emerging economies elaborating on hennart s 1989 transaction cost rationale for countertrade we develop a typology of exchange and transaction governance pertinent to the study of emerging economies contract trust and hostage notwithstanding the traditional explanation based on foreign exchange shortage we argue that the persistence of international countertrade illustrates organizational remedies to institutional deficiency in transaction governance

intellectual property piracy in a north south context empirical evidence the protection of intellectual property rights ipr has been a contentious issue for more than 20 years industrialized nations have moved to knowledge based economies and simultaneously trade barriers have fallen making intellectual property ip vulnerable adding to this vulnerability are conflicting international institutional environments belief systems and economic realities the debate over ipr protection has become a significant global trade issue pitting the net technology producing north against the net technology consuming south with this in mind there has been much debate about the impact of alternative ipr regimes tight or loose on the welfare of southern economies policy makers in both the south and the north search for arguments to convince recalcitrant southern countries to follow the northern model of strict ipr regimes the south faced with a dilemma searches for arguments to justify looser regimes or convince its populace that tighter regimes are in the best interest of the nation the objective of this research is to add empirical clarity about the welfare impacts of weak ipr on the firm and host country to this end we employ a novel methodological design and unique context the research design is deductive in that we use the empirical setting of pioneer argentina s a a seller of bioengineered agricultural seeds to test the existing theory of weak ipr impacts in a north south context

imitation costs and patents an empirical study it has long been recognised that the costs of imitating new products have an important effect on the incentives for innovation in a market economy as arrow i962 and others have pointed out if firms can imitate an innovation at a cost that is substantially below the cost to the innovator of developing the innovation there may be little or no incentive for the innovator to carry out the innovation in their discussions of the innovation process economists frequently have called attention to the major role played by the costs of imitation but there has been little or no attempt to measure these costs to test various hypotheses concerning the factors influencing them or to estimate their effects in this paper we report some findings of what seems to be the first study of this topic in addition we present data regarding the effects of patents on imitation costs and on the rate of innovation

contested exchange political economy and modern economic theory university of california berkeley department o f economics berkeley c a l i f o r n i a working paper 8876 contested exchange political economy and modern economic theory samuel bowles and herbert gintis june 8 1988 key words c o n t e s t e d exchange p o l i t i c a l jel c l a s s i f i c a t i o n economy

four formal izable theories of the firm in this essay i define and compare elemental versions of four theories of the firm these elemental theories are distilled from important contributions by hart holmstrom klein williamson and others although these contributions have been widely cited and much discussed i have found it difficult to understand the commonalities distinctions and potential combinations of these seemingly familiar contributions in this essay therefore i attempt to clarify these issues in three steps i begin with informal summaries of the theories then turn to simple but formal statements of each elemental theory and finally nest the four elemental theories in an integrative framework

entrepreneurial enterprises endogenous ownership and the limits to firm size this paper develops a simple model of entrepreneurial enterprises the analysis differs from traditional work on entrepreneurship by analyzing why entrepreneurial activities are typically conducted in small firms owned by the entrepreneur i argue that ownership incentives are an advantage of small firms when the probability of success of an economic activity becomes small if becomes costly for large firms to commit to strong incentives and small worker owned firms emerge the paper discusses application of the theory to innovation wild cat oil exploration restaurants and retail trade professional practices salesmen and franchising

strategic tariffs and endogenous market structures trade and industrial policies under imperfect competition abstract this paper examines strategic tariff policy tariff induced entry and endogenous market structures in a developing country setting it improves on recent theoretical treatments of optimal trade policy under imperfect competition by allowing for forward looking import substituting investment induced by an anticipated time consistent tariff policy it shows that the optimum tariff is robust across a subset of market structures and cost and demand specifications however it will usually involve insufficient or excessive entry by domestic firms and consequently industrial policy of various kinds is a necessary supplement to strategic tariff policy

transaction costs risk aversion and the choice of contractual arrangements publisher summary this chapter discusses transaction costs risk aversion and the choice of contractual arrangements every transaction involves a contract and the transactions conducted in the marketplace entail outright or partial transfers of property rights among individual contracting parties the contractual arrangements through which these transfers are negotiated are several and varied the chapter presents a theory that states that economic efficiency is the same under various land tenure arrangements subject to the constraint of private property rights although transaction costs exist in the real world the theory enables the understanding of much of the farming behavior however the presence of a variety of contractual arrangements under the same constraint of competition poses the question of the choice of these arrangements if a firm can increase efficiency in production by employing productive resources of more than one resource owner a contract to combine the resources will be obtained the formation of the contract involves partial transfers of property rights in one form or another such as leasing hiring or mortgaging

the ontology of economic power in capitalism mainstream economics and marx mainstream economics conceives power to be incompatible with perfect competition this conception i argue derives from its deductivist method and the empirical realist ontology that it presupposes following marx i show that capitalism constantly reproduces asymmetrical constraints on classes of individuals independent of the market form my ontological argument is rooted in the philosophy of critical realism my conclusion is that the dichotomy power competition is ontologically untenable if capitalist relations necessarily involve power it is not simply because neoclassical competition does not exist in reality as radical mainstream economists suggest but rather because capitalism altogether is a system of power

incomplete contracts vertical integration and supply assurance this paper extends the analysis of transactions cost models of vertical integration to multilateral settings its main focus is on supply assurance concerns which arise when several downstream firms are competing for inputs in limited supply integration reduces supply assurance concerns for an integrating firm but it may increase them for others therefore to explain the scope of any firm one must consider the overall network of production and distribution relations three fundamental questions are addressed 1 what are the effects of different integration structures 2 what are the determinants of the socially efficient integration structures 3 in what way do equilibrium integration structures differ from socially efficient structures

design complexity vertical disintegration and knowledge organization in the semiconductor industry this article examines the advantages and drawbacks of internal knowledge integration versus collaborative outsourcing as two polar modes of governance in the design of application specific integrated circuits asics increasing technological complexity miniaturization and the generalization of markets for technology have induced higher integration constraints for designers the pace of innovation and frequent changes in design rules require a tightly controlled design process as a consequence knowledge integrators must develop expertise beyond the scope of their domain of activity if they are to ascertain the overall efficiency of systems we find that although internalization of knowledge integration reduces coordination and agency related costs the involvement of partner firms in upstream design phases facilitates knowledge sharing and improves the coordination of innovation in modules the analysis of the evolution of the asics industry shows that while large system integrators remain the dominant players specialist firms are gaining market shares and do not hesitate to embark on the design of leading edge systems this result may simply reveal the increasing value of component knowledge in a disaggregated value chain however relying on a comparative case study of two similar development processes one with each of the knowledge integration approaches we confirm the strength of decentralized modes of governance on the condition that partner firms engage in a long term relationship copyright 2007 oxford university press

the demonstration effect of transactions between strangers on those between acquaintances evidence from land rentals in rural china over the last decade introducing outer village lessees has been an important approach to increasing the marketization of land rentals in rural china however with large numbers of informal featur

government versus private ownership of public goods the role of bargaining frictions abstract the government and a non governmental organization ngo can invest in the provision of a public good who should be the owner of the public project in an incomplete contracting model in which ex post negotiations are without frictions the party that values the public good most should be the owner regardless of technological aspects however under the plausible assumption that there are bargaining frictions the optimal ownership structure depends on technological aspects and on the parties valuations we show that the differences between incomplete contracting models with public goods and private goods are thus smaller than has previously been thought

institutions transaction costs and economic growth this essay develops a theoretical framework which explores the historical obstacles to economic growth these obstacles are examined in the context of the political economic institutional framework of economies in history and consequent transaction costs that determine economic performance and growth the essay concludes with specific suggestions for the study of economic growth

the contractual nature of the firm for their helpful comments i am grateful to armen a alchian yoram barzel keith leffler john s mcgee and dean worcester 1 ronald h coase the nature of the firm 4 economica 386 1937 the paper however was written several years earlier see note 3 infra 2 the social sciences citation index provides the following information breaking down the period of 1966 80 into three five year periods the total citations of coase s firm paper for each subperiod are 1966 70 17 citations 1971 75 47 citations and 1976 80 105 citations

coaching team production coaching team production the actual function of managers is the subject of much debate using data on more than 3000 male college basketball players their coaches and their skill levels we find a positive and significant relation between our ability to replicate an individual coach s allocation of playing time across players and his winning percentage although this result does not answer the central question of just what it is that managers contribute the results do support the property rights paradigm managers are the employees of workers and more generally sports data can be used to help understand related economic processes where quantifiable measures of inputs and outputs are more costly to obtain what is meant by performance input energy initiative work attitude perspiration rate of exhaustion or output sometimes by inspecting a team member s input activity we can better judge his output effect it is not always the case that watching input activity is the only or best means of detecting measuring or monitoring output effects of each team member but in some cases it is a useful way i introduction a major tenet of the alchian demsetz 1972 representation of the firm is that managers are hired by workers to prevent shirking and malfeasance in their own ranks absent overseers individual workers bear only a fraction of the cost of shirking and hence everyone undersupplies labor relative to its opportunity cost in this world the managerial function is to monitor inputs and meter rewards thereby reducing the incentive to shirk and raising each worker s marginal productivity the more dependence there is in the marginal products of laborers the more important the role of management this view of supervision is simultaneously intuitively pleasing and difficult to quantify this paper investigates the role of management in a setting where indisputably there is team production intercollegiate basketball 1 data on 3012 college basketball players across ten years and sixty five teams are used to replicate one aspect of coaching the allocation of playing time next we attempt to link coaching decisions to winning the goal is to determine if coaches who manage well by our standards are successful section ii motivates the paper in section iii the empirical methodology is detailed the monitoring function is estimated and related to coaching success section iv contains a summary and conclusion ii coaching decisions the essence of team production is interdependence and the inherent immeasurability of marginal productivity across workers however this does not mean that proxies for marginal productivity cannot be developed managers monitor worker inputs and deduce marginal products accordingly of course some inputs are more cheaply quantified than others attitude is hard to measure but heart rate is easy sweat is observed cheaply but workers can feign exhaustion in the famous chinese boatpullers fable the coxswain uses his whip to insure that coolies pull efficiently to persuade each worker to give the appropriate effort 2 mcmanus 1975 341 relates a story told by cheung boats are pulled upstream by a team of coolies prodded by an overseer with a whip an american lady horrified at the sight of the overseer whipping the men as they strained at their harness demanded that something be done about the brutality she was quickly informed those men own the rights to draw boats over this stretch of water and they have hired the overseer and given him his duties here the monitor uses his vision intuition and experience to determine shirking counseling the loafers with his whip but employing subjective observation is just one way to monitor

examining economic organization through the lens of contract the lens of contract approach to the study of economic organization is partly complementary but also partly rival to the orthodox lens of choice specifically whereas the latter focuses on simple market exchange the lens of contract is predominantly concerned with the complex contracts among the major differences is that non standard and unfamiliar contractual practices and organizational structures that orthodoxy interprets as manifestations of monopoly are often perceived to serve economizing purposes under the lens of contract a major reason for these and other differences is that orthodoxy is dismissive of organization theory whereas organization theory provides conceptual foundations for the lens of contract copyright 2003 oxford university press

is free trade passe abstract if there were an economist s creed it would surely contain the affirmations i understand the principle of comparative advantage and i advocate free trade yet the case for free trade is currently more in doubt than at any time since the 1817 publication of ricardo s principles of political economy and this is due to changes that have recently taken place in the theory of international trade while new developments in international trade theory may not yet be familiar to the profession at large they have been substantial and radical in the last ten years the traditional constant returns perfect competition models of international trade have been supplemented and to some extent supplanted by a new breed of models that emphasizes increasing returns and imperfect competition these new models call into doubt the extent to which actual trade can be explained by comparative advantage they also open the possibility that government intervention in trade via import restrictions export subsidies

international r d rivalry and industrial strategy this paper presents a theory of government intervention which provides an explanation for industrial strategy policies such as r d or export subsidies in imperfectly competitive international markets domestic net welfare is improved by the capture of a greater share of the output of rent earning industries although the subsidy ridden noncooperative international equilibrium is jointly suboptimal behaviour of governments and firms is modelled as a three stage subgame perfect nash equilibrium the assumption that the government is the first player in this game allows it to influence equilibrium outcomes by altering the set of credible actions open to firms

international politics and import diversification abstractthis paper examines how international politics affects trade in the absence of empires or wars we first show that deterioration of relations between the united states and another country measured by divergence in their united nations general assembly voting patterns reduced u s imports from that country during 1962 2000 though statistically significant the magnitude of the effect of political distance on trade is small indeed we show that except for petroleum and some chemical products u s imports are not affected by international politics american firms however diversify their oil imports significantly away from political opponents of the united states oil trade is often associated with backward vertical foreign direct investment that is subject to the expropriation risk in contrast to the usual claim that oil is a strategic commodity we provide suggestive evidence that trade in products when rents are appropriable is more likely to be affected by international politics

the economics of governance the economics of governance is an effort to implement the study of good order and workable arrangements where good order includes both spontaneous order in the market which is a venerated tradition in economics adam smith 1776 friedrich hayek 1945 kenneth a arrow and gerard debreu 1954 and intentional order of a conscious deliberate purposeful kind chester irving barnard 1938 p 9 also i interpret workable arrangements to mean feasible modes of organization all of which are flawed in comparison with a hypothetical ideal avinash dixit 1996 pp 4 9 the object is to work out the efficiency logic for managing transactions by alternative modes of governance principally spot markets various long term contracts hybrids and hierarchies interest among social scientists economists included in the study and practice of good order and workable arrangements has been steadily growing in contrast with the orthodox lens of choice prices and output supply and demand the economics of governance is a lens of contract construction broadly in the spirit of james buchanan s 2001 p 29 observation that mutuality of advantage from voluntary exchange is the most fundamental of all understandings in economics the economics of governance as herein described is principally an exercise in bilateral private ordering by which i mean that the immediate parties to an exchange are actively involved in the provision of good order and workable arrangements to be sure the need for private ordering varies with the rules of the game as provided by the state distinctions between lawlessness where the state provides limited or unreliable protection for property and contract dixit 2004 and lawfulness where the state undertakes to protect property and enforce contracts in a principled way are pertinent the first of these applies mainly to primitive and transition economies the second is commonly associated with western democracies recourse to private ordering under conditions of lawlessness is altogether understandable given the absence of state support the walter a haas school of business university of california berkeley ca 94720 1900 the paper has benefited from workshop presentations at the university of california berkeley the university of valencia insead fountainebleau and the 2004 annual conference of the international society for new institutional economics an abbreviated version was also given as the horst claus recktenwald lecture at nuremburg on 4 november 2004 comments and suggestions from fred balderston ernesto dalbo avinash dixit robert gibbons witold henisz ian larkin steven tadelis and dean williamson are especially acknowledged 1 lon fuller s 1954 p 477 definition of eunomics as the science theory or study of good order and workable arrangements is very much in the spirit of what i refer to as governance 2 one of the immediate ramifications of insistently comparing feasible alternatives all of which are flawed is that the purported inefficiencies that are ascribed to failures to achieve first best optimality are not dispositive but invite the query as compared with what i return to this issue in section iv 3 excluding corporate governance the numbers of articles that used the word governance during the period 1998 2000 as compared with the period 1977 1979 in selected economics business management sociology organization and political science journals were 60 vs 1 76 vs 4 79 vs 18 and 60 vs 25 where the journals surveyed were the american economic review journal of political economy quarterly journal of economics rand journal of economics and journal of economic perspectives in economics strategic management journal management science academy of management journal and academy of management review in business management administrative science quarterly organization science american journal of sociology american sociological review and annual review of sociology in sociology organization and american political science review political science quarterly journal of politics and political research quarterly in political science combining these four categories articles using the word governance increased from 48 to 275 over this 20 year interval dixit 2004 pp 149 50 reports that the number of web pages that turn up under the search for governance is huge

the demise of radical political economics an essay on the evolution of a theory of capitalist production the paper traces the historical development of american radical economics the focus is on the work of samuel bowles and herbert gintis the central aim is to examine the implications of their recent move towards neoclassical economics for the study of capitalist production in particular and the future of american radical economics more generally by embracing neoclassical concepts and methodology radical economists have denied themselves the opportunity to elucidate both the bases of capitalist class conflict and the nature of more complex social interactions at the point of production american radical economics once provided a powerful critique of capitalism and its system of production but it now struggles to provide more than a policy prescription for reduced levels of opportunism among individual workers american radical economics cannot remain a distinctive voice in economics while it retains such close associations with neoclassicism copyright 2000 by oxford university press

trade related intellectual property rights industry variation and technology diffusion the wto inspired strengthening of intellectual property rights iprs in developing countries remains highly controversial even more than 15 years after the 1994 trips agreement this paper assesses how a strengthening of iprs aects international technology diusion by altering the volume of high tech exports into developing countries a simple north south general equilibrium model in which industries dier in their imitation rates is developed stronger iprs encourage northern rms in a wider range of industries to start exporting exports in industries with the highest risk of imitation rise while exports in other industries may fall international technology diusion does not necessarily fall with stronger iprs more technology diuses to the south because new high tech products are introduced in the southern market this works against the reduction in technology diusion caused by limited imitation

public policy towards r d in oligopolistic industries the importance of determining optimal policy towards r d cannot be exaggerated given the worldwide interest in fostering r d and given the significant differences between european and u s policies towards interfirm cooperation on r d moreover the problem is an inherently difficult one because of the complex nature of the r d process since r d is a component of fixed costs industries where it is important tend to be concentrated hence r d policy must go hand in hand with competition policy at the same time r d is like any form of investment in that it precedes the production stage hence issues of time consistency and strategic commitment inevitably arise in considering the choice of r d policy finally r d by one firm typically leads to spillovers wbich benefit other firms so that r d exhibits many of the character department of economics university college dublin belfield dublin 4 ireiatid for helpful discussions and comments we are grateful to two anonymous referees to pedro bartos steve martin massimo motta and damien neven and to participants at seminars in birmingham st andrew s and warwick at a cepr workshop on r d spillovers in lausanne at erwit 94 in caslel gandolfo eea 95 in prague the 1996 conference on industrial economics at universidad carlos iii de madrid and a meeting of the dublin economics workshop this paper was produced as part of the international economic performance programme of the centre for economic performance london school of economics supported by the u k esrc an earlier version was circulated as cepr discussion paper no 1243 see alexis jacquemin 1988 and stephen martin 1996 istics of a public good albeit one that is mostly privately produced tbe degree to which such spillovers occur and can be internalized is another crucial influence on the desirable pattem of intervention