price adjustment in long term contracts the case of coal in two recent papers i examined the effects of relationship specific investment on the duration of contracts negotiated between electric utilities and coal suppliers that work demonstrated that when relationshipspecific investment is important for a cost minimizing supply relationship contracts are frequently utilized that specify ex ante the terms and conditions of trade over many future years in this article i examine the characteristics of the price adjustment provisions specified in these long term coal contracts i utilize a sample of about 250 coal contracts to analyze the structure of formal price adjustment provisions in coal contracts in order to determine the factors that affect initial negotiated contract prices and to examine actual transaction price behavior over time there has been much recent theoretical work as well as some related empirical work that has focused on the benefits of long term contracts when relationship specific investments are important 2 there has also been some theoretical work that focuses on the contractual arrangements that may be chosen to mitigate opportunism problems and guard against

the residential market of hong kong rational or irrational the current study attempts to investigate the proposition that hong kong residential market is only driven by a rational speculative bubble in addition to fundamentals the fundamentals are chosen according to the present value model but will account for latent private information potential roles of other public information are also explored the study finds that the influence of the rational bubble on the price growth is highly significant however in contrast to seoul and singapore housing market xiao 2006 xiao and huang 2007 neither the fundamentals nor the rational bubble can explain much of the price growth in the market of concern this finding leaves large room for questioning whether or not this market is more prone to irrationality than its counterparts in seoul and singapore

should we be worried about the green paradox announcement effects of the acid rain program this paper presents the first empirical test of the green paradox hypothesis according to which well intended but imperfectly implemented environmental policies may lead to detrimental outcomes due to supply side responses we use the introduction of the acid rain program in the u s as a case study the theory predicts that owners of coal deposits expecting future sales to decline would supply more of their resource between the announcement of the acid rain program and its implementation moreover the incentive to increase supply would be stronger for owners of high sulfur coal this would all else equal induce an increase in sulfur dioxide emissions using data on prices heat input and sulfur content of coal delivered to u s power plants we find strong evidence of a price decrease and of an increase in the sulfur premium some indication that the amount of coal used might have increased and no evidence of fuel switching towards higher sulfur coal overall our evidence suggests that while the mechanism indicated by the theory might be at work market conditions and concurrent regulation largely prevented a green paradox from arising these results have implications for the design of climate policies

efficient lot sizing under a differential transportation cost structure for serially distributed warehouses abstract a major cost element in the logistics of distributed warehousing is transportation cost in most practical systems the transportation costs are volume dependent the unit transportation costs are usually determined differentially among intervals of shipment volumes while the unit cost is constant over an interval it follows a stepwise declining pattern from an interval to the next higher interval of shipment volumes this structure is analogous to that of quantity discounted inventory systems we consider a single product serial warehousing system operating under the differential transportation costs and the traditional holding and ordering costs external demand occurs at the final stage at a constant continuous rate demand must be met on time over an infinite horizon under continuous review the objective is to determine the ordering lot size for each warehouse such that the long run average cost is minimized we model the above problem and establish its structural properties we first consider two level differential transportation cost structures and develop efficient algorithms to obtain a best integer ratio and optimal powers of two policies next we consider multilevel cost structures and develop a hypercube characterization of the solution space efficient algorithms to yield a best integer ratio and powers of two policies using the hypercube model and a relaxation approach using the two level model are developed extensive computational studies with the algorithms reveal that the proposed modeling and algorithmic approach is both viable and efficient in solving practical distribution problems conclusions and direction for future research are presented

efficient adaptation in long term contracts take or pay provisions for natural gas to mitigate the inflexibility of long term contracting for natural gas parties will look for terms that minimize the need for costly adjudication while maintaining incentives for appropriate adaptation the authors examine the incident of take or pay provisions in contracts between natural gas producers and pipelines from this perspective they argue that take obligations can be viewed as a mechanism for effecting appropriate incentives for contractual performance and show that efficient breach considerations define an optimal take percentage as a function of characteristics of the transaction these incentives are distorted by regulated price ceilings which cause the adoption of take obligations in excess of optimal levels the findings refute the common perception that take or pay provisions are just an artifact of wellhead price regulation and serve no useful purpose in the absence of regulation 20 references 1 figure 1 table

a heuristic for single warehouse multiretailer supply chains with all unit transportation cost discounts abstract in supply chain management research transportation costs if explicitly considered at all are frequently assumed to be linear these costs often have a more complex form such as an all unit discount structure this piecewise cost function adds significant complexity when included in supply chain management problems and is therefore often ignored due to solution time or tractability concerns we present and evaluate a new heuristic procedure which provides good solutions to problems involving all unit discount cost functions while significantly reducing solution times the general nature of this procedure does not require assumptions about the supply chain structure or policies and is therefore applicable in a wide range of settings

asset bubbles monetary policy and bank lending in japan an empirical investigation asset prices rose rapidly in japan during the latter half of the 1980s and then declined as quickly in the early 1990s their behaviour is consistent with the existence of speculative bubbles in these markets this paper investigates the dynamic relationships among stock and land prices in japan output and monetary and bank lending variables the results of causality tests and variance decompositions are reported for two time periods 1972 1501985 and 1986 1501991 the price bubbles affected each other in the first period although the size of this impact is dependent on the choice of variables in the vars in the bubble period there is strong evidence that the stock market bubble was determined by its own past and also influenced the land market bubble accounting for a significant proportion of the variance of the land market bubble however neither output the money supply nor the lending variables were significant in the causality tests or in explaining the variation of the two assset bubbles

non contractible investments and vertical integration in the mexican footwear industry abstract this paper examines patterns of integration among manufacturers and retailers using data from a survey of footwear manufacturers in mexico the property rights framework developed in papers by grossman and hart 1986 j polit econ 94 691 and hart and moore 1990 j polit econ 98 1119 is differentiated from the standard empirical transactions cost framework in the context of this industry the most relevant distinction between the two frameworks is that the property rights framework addresses both the benefits and costs of integration while the transactions cost framework focuses only on variation in the benefits of integration we show that the costs of integration are highest where the retailer s non contractible investment has an important effect on the overall profits from the relationship consistent with the property rights framework the data suggest that integration is less likely in these circumstances

airline firm boundary and ticket distribution in electronic markets abstract the electronic markets hypothesis emh predicts that the intense intrusion of information technology it into the market system has a strong influence on the degree of market coordination as transaction costs go down due to inexpensive it enabled exchange of information market based economic activities increase contrary to the predictions of the emh us legacy airlines have increasingly relied on hierarchical governance and oppose market based economic activities using us legacy airline distribution strategies as an example this paper demonstrates that even dominant players in an oligopolistic industry operating during the explosive evolution of electronic markets are subject to the predictions set by the emh predictions of the emh are tested by analyzing 17 years of operational data using the dea data envelopment analysis method tobit regression is executed in tandem with dea to test the hypothesis that various strategies deployed by the legacy airlines have a strong impact on operational performance despite the perceived market power possessed by the strongest players and the apparent inverse relationship between it driven distribution and production within hierarchies the end results reveal that legacy airline business strategies such as disintermediation to exclude downstream players or vertical integration to compete with rivals have created a negative impact on the business performance of airlines operational efficiency has not improved

vertical integration and firm boundaries the evidence since ronald h coase s 1937 seminal paper a rich set of theories has been developed that deal with firm boundaries in vertical or input output structures in the last twenty five years empirical evidence that can shed light on those theories also has been accumulating we review the findings of empirical studies that have addressed two main interrelated questions first what types of transactions are best brought within the firm and second what are the consequences of vertical integration decisions for economic outcomes such as prices quantities investment and profits throughout we highlight areas of potential cross fertilization and promising areas for future work

contract duration and relationship specific investments empirical evidence from coal markets this paper examines the importance of specific relationship investments in determining the duration of coal contracts negotiated between coal suppliers and electric utilities data for 277 coal contracts are used to perform the analysis the results provide strong support for the view that buyers and sellers make longer commitments to the terms of future trade at the contract execution stage and rely less on repeated bargaining when relationship specific investments are more important

agency theory and franchising some empirical results this article provides an empirical assessment of various agency theoretic explanations for franchising including risk sharing one sided moral hazard and two sided moral hazard the empirical models use proxies for factors such as risk moral hazard and franchisors need for capital to explain both franchisors decisions about the terms of their contracts royalty rates and up front franchise fees and the extent to which they use franchising in this article i exploit several new sources of data on franchising to construct a cross section of 548 franchisors involved in various business activities in the united states in 1986 the data are most consistent with a model based on two sided moral hazard the empirical models are also more successful at explaining the extent to which franchisors choose to franchise stores than at explaining the terms of franchise contracts finally contrary to the predictions of several theoretical models i find that royalty rates and franchise fees are not negatively related

a stochastic aggregate production planning model in a green supply chain considering flexible lead times nonlinear purchase and shortage cost functions in this paper we develop a stochastic programming approach to solve a multi period multi product multi site aggregate production planning problem in a green supply chain for a medium term planning horizon under the assumption of demand uncertainty the proposed model has the following features i the majority of supply chain cost parameters are considered ii quantity discounts to encourage the producer to order more from the suppliers in one period instead of splitting the order into periodical small quantities are considered iii the interrelationship between lead time and transportation cost is considered as well as that between lead time and greenhouse gas emission level iv demand uncertainty is assumed to follow a pre specified distribution function v shortages are penalized by a general multiple breakpoint function to persuade producers to reduce backorders as much as possible vi some indicators of a green supply chain such as greenhouse gas emissions and waste management are also incorporated into the model the proposed model is first a nonlinear mixed integer programming which is converted into a linear one by applying some theoretical and numerical techniques due to the convexity of the model the local solution obtained from linear programming solvers is also the global solution finally a numerical example is presented to demonstrate the validity of the proposed model

an empirical investigation of oliver williamson s organization of work oliver williamson argues that the attributes of the employment contract like intermediate transactions in general are essentially driven by the specificity of assets in the case of the organization of work it is the particular attributes of labour that determines the transaction costs of any given governance structure the paper presents a stylized account of the transaction cost model of the efficient organization of work stressing an underlying tension and ambiguity in the transaction cost framework the paper exploits a unique dataset to test for the first time with british data williamson s transaction cost predictions concerning the nature of employment contracts williamson tacitly assumes that asset specificity is exogenous in general however there is evidence in the literature that labour specificity is endogenous to employment contracts the paper endeavours to demonstrate that there is empirical evidence to suggest that specialized labour is indeed endogenous in the transaction cost mode

subcontracting and competitive bidding on incomplete procurement contracts this article examines the impact of incomplete contracts on subcontracting and the design of procurement auctions i estimate the effect of ex post contract revisions on unit costs for both subcontracted and in house performed work items on bridge projects procured by the california department of transportation i model a scoring auction showing how ex post revisions skew bidding decisions and estimate unit costs from bid data using the method of sieve estimation the results highlight the cost implications of incomplete contracting frictions subcontracting decisions and bidding distortions in conclusion i propose alternative auction mechanisms that could improve outcomes

contractual form and market thickness in trucking a central proposition of the transaction costs literature is that firms will substitute more complicated contractual arrangements for simple spot arrangements when transactions involve relationship specific investments i investigate this proposition by testing whether simple spot arrangements are less common when local trucking markets are thin i find that doubling the thickness of the market increases the likelihood that simple spot arrangements govern transactions by about 30 for long hauls i find weaker evidence of relationships between local market thickness and contractual form for short hauls hauls for which quasi rents are particularly small contracts protect quasi rents over a surprisingly large range but they play a less important role as quasi rents decrease

presidential address antitrust restrictions on single firm strategies this article offers an overview of selected developments in the law and economics of antitrust regulation of single firm strategies the strategy generating the most cases historically is resale price maintenance here the law has moved sharply in both canada and the u s towards more solid economic foundations yet a gap between the law and economics remains the economics of resale price maintenance is reviewed within a framework that is much simpler and more general than the existing literature the law on a second strategy predatory pricing represents in my view a success story for the influence of economic theory in spite of the absence of a single accepted theory of predatory pricing the remaining single firm strategies are concerned largely with the exclusion by a dominant firm of rivals from a market i review with application to cases the two most basic questions concerning exclusionary strategies are exclusionary anticompetitive contracts ever entered into voluntarily by market participants on the other hand is complete or substantial foreclosure of a market through exclusionary strategies necessarily anticompetitive cette allocution presidentielle a l association canadienne d economique presente une vue d ensemble des developpements dans le droit et l economie de la reglementation antitrust sur les strategies d une firme unique la loi sur la strategie qui genere historiquement le plus de cas le maintien du prix de revente a change dramatiquement au canada et aux etats unis et derive vers une politique qui a des assises economiques solides mais il reste un ecart entre le droit et l economie on reexamine l economie du maintien du prix de revente a l aide d un cadre d analyse qui est a la fois plus simple et plus general que ce qui existe dans la litterature specialisee la loi pour ce qui est d une seconde strategie prix d eviction est a mon avis une grande reussite pour la science economique malgre l absence d une seule theorie du prix d eviction generalement acceptee un troisieme ensemble de strategies concerne l exclusion de ses rivaux d un marche par la firme dominante l auteur reexamine avec un recours extensif aux cas les deux questions de base pour ce qui est des strategies d exclusion est ce que les participants sur un marche entrent jamais volontairement dans un arrangement contractuel qui exclut et est anticoncurrentiel d autre part est ce que la saisie complete ou substantielle d un marche par des man uvres d exclusion est necessairement anticoncurrentielle

how to deliver foreign aid the case of projects governed by the spanish international agency summary international agencies use two alternative modes of governance to deliver international aid projects under bilateral agreements with recipient governments in house or through incumbent ngos through the lenses of institutional and transaction cost economics this article examines 95 international aid projects delivered in morocco and ecuador by the spanish international agency finding that those projects delivered in house present different features than those projects outsourced through incumbent ngos specifically international aid projects delivered in house involve important investments in specific assets are much more complex and can turn the public agency into a hostage of its own disbursement

power in a theory of the firm transactions take place in the firm rather than in the market because the firm offers power to agents who make specific investments past literature emphasizes the allocation of ownership as the primary mechanism by which the firm does this within the contractibility assumptions of this literature we identify a potentially superior mechanism the regulation of access to critical resources access can be better than ownership because i the power agents get from access is more contingent on their making the right investment and ii ownership has adverse effects on the incentive to specialize the theory explains the importance of internal organization and third party ownership

economic lot size model for price dependent demand under quantity and freight discounts abstract previous studies have developed procedures which determine optimal lot size and selling price when demand depends on price and all unit quantity discounts are offered further recent studies have addressed the concepts of quantity and freight discounts for constant demand in this paper we incorporate quantity and freight discounts in inventory decision making when demand rather than being constant is considered to be dependent upon price an algorithm is developed to determine the optimal lot size and selling price for a class of demand functions including constant price elasticity and linear demand a numerical example is provided to illustrate the model and a computer program is developed to implement the model derived in the paper

instabilities of strategic alliances an internal tensions perspective the instabilities of strategic alliances have been examined in the literature through a number of theoretical approaches alliance instabilities refer to major changes or dissolutions of alliances that are unplanned from the perspective of one or more partners although the literature identifies certain characteristics of strategic alliances that may lead to their unplanned dissolution the extent of our understanding of this subject appears to be fragmented and incomplete in this article we propose a comprehensive framework for adequately understanding alliance instabilities based on the notion of internal tensions we suggest that strategic alliances are sites in which conflicting forces develop and which can be viewed as being constituted by three key pairs of competing forces namely cooperation versus competition rigidity versus flexibility and short term versus long term orientation this tensions framework helps us in explaining the intrinsic vulnerability of alliances in terms of a wide range of internal contradictions and enables us to examine in an integrated manner the incidence dynamics and eventual dissipation of the inherent instabilities we discuss the interrelationships among the different internal tensions and their impacts on different types of strategic alliances we also examine the termination of alliances through mergers acquisitions and dissolution finally we suggest ways to empirically test the various ideas and propositions developed here and indicate directions for further research

the british electricity experiment the privatization of the electricity supply industry esi in britain which began 1990 is in itself an unremarkable event much of the esi is privately owned in several european countries and in the united states and the u k privatization program has embraced utilities since 1984 when british telecom was privatized the thing that is remarkable about recent policy toward the industry is the radical nature of the regulatory reform accompanying privatization a vertically integrated administered generation and transmission structure was replaced overnight on march 31 1990 by one that is deintegrated and market based generation and transmission have been separated and there has been an attempt to establish competition in generation a number of countries have been moving gradually in the direction of encouraging competition but nowhere else have such dramatic changes been implemented so quickly

a transaction costs analysis of innovations in the organization of pharmaceutical r d abstract this paper uses transaction costs economics to analyze the increasing importance of vertical disintegration of r d by large pharmaceutical and chemical firms first it discusses three characteristics of the research based pharmaceutical industry then it shows that market failures related to long term joint venture r d contracts between firms and university laboratories are less significant than appears at first and may account for their striking increase over the past fifteen years

mitigating contractual hazards unilateral options and contract length in this article we consider the ways in which the desire for efficient low cost adaptation to change influences the tradeoff between the design and duration of long term contractual relationships we examine the distortions in contract terms occasioned by nonprice competition for natural gas in the presence of wellhead price regulation deviations from optimal contract incentives significantly raise the cost of being bound to long term agreements and shorten the duration of contracts the approach we adopt suggests a method for empirically assessing the efficiency of alternative contracting practices and legal standards

buyer investment export variety and intrafirm trade abstract this paper studies a model of buyer investment and its effect on the variety and vertical structure of international trade a distinction is made between two types of buyer investment flexible and specific which differ in the ability of a buyer to match with a seller the interaction of buyer investment with the entry and pricing incentives of suppliers are analyzed it is shown that i there can be multiple equilibria in the variety of products traded and ii less product variety is associated with more intrafirm trade the possibility of multiple equilibria is consistent with the observation that some similar economies such as taiwan and south korea differ substantially in their export varieties to the u s a cross country empirical analysis confirms the negative correlation between export variety and intrafirm trade

playing for keeps pay and performance in the nba i introduction a basic insight of agency theory is that properly designed incentive contracts can align the interests of agents with those of the principal and recent empirical work shows that workers do indeed respond to financial incentives 1 contractual incentives however are not the only force motivating workers workers also have incentives to vary effort at different points of their contract cycle to increase effort just before a new contract is signed to lock in a more lucrative deal and then reduce it after a multi year contract is secured these types of contract related incentives create clear moral hazard problems but have received little empirical attention the motivating hypothesis in this paper is that imperfect information and multi year contracts create an implicit incentive for workers to strategically alter effort over the contract cycle in the year prior to signing the contract their contract year workers may exert above average effort to convince employers that they are high quality and thus raise long term compensation once the contract is signed however workers may exert less effort because wages are effectively independent of contemporaneous performance an empirical difficulty is that this moral hazard may be obscured by two factors a selection effect may lead only high quality workers to receive contracts and career concerns may provide additional incentives and dampen the post contract decline 2 this paper employs a unique dataset for professional basketball players in the national basketball association nba from 1988 to 2002 to examine the contract related incentive effects the data include contract information year signed length of contract and value of contract for every active player in 2000 and performance measures points scored rebounds assists etc throughout each player s career contract related incentive effects are estimated from changes in individual performance over the contract cycle if performance systematically improves just before signing a new contract and falls afterward some of the fluctuation is likely due to contract related incentives i also examine the traditional link between pay and past performance which is necessary for these types of incentives to be relevant the critical advantage of this data is the detailed information on individual performance individual contract status and individual pay 3 in contrast previous work on individual incentives for example lazear 2000 paarsch and shearer 2000 and shearer 2004 studied changes infirmwide compensation plans while the empirical literature on executive pay and performance for example murphy 1985 1986 jensen and murphy 1990 gibbons and murphy 1992 kaplan 1994 and hall and liebman 1998 typically examined the link between individual pay and firm performance the individual level data constructed here have the critical variation across individuals which is needed to identify the impact of these contract related incentive effects the empirical work begins with a test of the link between pay and performance which is necessary for contract related incentives to be operational not surprisingly better performers in the nba are rewarded with higher salaries and longer contracts more relevant to the incentive issue players are strongly rewarded for improvements in performance in their contract year a one point increase in a player s scoring average for example is associated with an annual salary increase of over 300 000 this link provides the crucial motivation for the hypothesis that players will exert additional effort in their contract year to lock in the better contracts that they expect to follow the data then provide strong evidence of contract related incentive effects as overall performance does in fact improve relative to a player s long run average in the contract year and then declines after a long run contract is signed

oligopsony power asset specificity and hold up evidence from the broiler industry in this article we look for empirical evidence of hold up in broiler industry production contracts by using the cross sectional national survey of broiler growers first we focus on the problem of under investment and hypothesize that the degree of agent s grower s under investment systematically depends on the principal s integrator s market power and the level of asset specificity second we provide an indirect test of hold up by looking at the grower contract payoffs as a function of the frequency of the housing facilities upgrade requests and the principal s market power the results show moderate empirical support for the presence of hold up

coordinated supply chain management abstract historically the three fundamental stages of the supply chain procurement production and distribution have been managed independently buffered by large inventories increasing competitive pressures and market globalization are forcing firms to develop supply chains that can quickly respond to customer needs to remain competitive these firms must reduce operating costs while continuously improving customer service with recent advances in communications and information technology as well as a rapidly growing array of logistics options firms have an opportunity to reduce operating costs by coordinating the planning of these stages in this paper we review the literature addressing coordinated planning between two or more stages of the supply chain placing particular emphasis on models that would lend themselves to a total supply chain model finally we suggest directions for future research

viewpoint empirical research on firms boundaries empirical research on the determinants of firms boundaries has flourished over the past 25 years this article discusses the progress that has been made to date emphasizing the intellectual advances made by researchers in this literature during this period i stress empirical researchers important role in operationalizing theoretical concepts and relate how success on this dimension brings these concepts to bear on real life make or buy decisions i also discuss shortcomings in the current literature in particular the paucity of research on how variation in firms boundaries can affect economic outcomes and point to how and where such shortcomings might be overcome la recherche empirique sur les determinants des frontieres de l entreprise a fleuri au cours des derniers 25 ans cet article discute des progres accomplis en mettant l accent sur les avancees intellectuelles faites par les chercheurs dans la litterature specialisee durant cette periode on souligne le role important des chercheurs empiriques dans l operationnalisation des concepts theoriques et on explique comment les succes dans ce registre ont contribuea faire que ces concepts ont eu un impact sur les decisions de faire ou faire faire dans la vie reelle on discute aussi des deficiences de cette litterature en particulier la pauvrete des travaux de recherche sur l impact de la variation dans les frontieres des entreprises sur les rendements economiques et on suggere comment de telles deficiences pourraient etre corrigees

were japanese stock prices too high abstract this paper asks whether market fundamentals can explain the recent run up and decline of japanese equity values and price earnings ratios accounting differences explain about half of the long run disparity between u s and japanese p e s for example if japanese firms used u s accounting rules the japanese p e ratio would have been 32 6 not 53 7 in 1989 accounting differences cannot however explain the doubling of this ratio in 1986 nor its decline in 1990 similarly we are unable to isolate changes in required stock returns or growth expectations that are large enough to explain recent japanese stock price movements

retail contracting theory and practice we summarize a number of regularities that arise in the empirical literature on contractual relationships between manufacturers and their exclusive resellers we do this using studies of traditional and business format franchise relationships as well as studies of salesforce integration decisions some of the patterns that we uncover are consistent with a standard incentive cum insurance theory of organization while others are not we brie y review some theoretical extensions that seem promising in terms of reconciling seeming con icts between theory and practice i introduction manufacturers of retail products must decide whether to sell their products to consumers themselves vertical integration or to sell via independent retailers vertical separation when manufacturers do not perform the sales function internally but want exclusive retailers they usually choose some form of franchising 1 many theories attempt to explain the choice of retail organizational form moreover a considerable body of empirical evidence concerning this choice is accumulating we attempt to evaluate this econometric evidence and relate it to the theories to accomplish this task we assess studies of franchising arrangements as well as studies of sales force organization in industrial settings the paper is organized as follows in the next section we highlight a number of regularities that arise in the empirical literature on retail contracting in particular we nd that i risk is positively related to the use of high powered incentives vertical separation ii the importance of the agent s eiort in production is positively related to the use of high powered incentives

affiliation integration and information ownership incentives and industry structure this paper presents theory and evidence on horizontal industry structure at issue is the question what makes industries necessarily fragmented the theoretical model examines trade offs associated with affiliation and integration and how they are affected by the contracting environment i show how contractual incompleteness can lead industries to be necessarily fragmented i also show that contractual improvements will tend to lead to a greater concentration of brands but whether they lead industries to be more or less concentrated depends on what becomes contractible i then discuss the propositions generated by the model through a series of case study examples i introduction two core theoretical literatures underlie much of the field of industrial organization theories of industry structure and theories of the firm although the issues these literatures emphasize are very different they actually seek to explain the same thing theories of industry structure are in a way also theories of firms boundaries likewise theories of firms boundaries can also be read as theories of industry structure these literatures have different strengths and weaknesses the industry structure literature provides several good explanations for why industries might be necessarily concentrated the traditional literature bain 1956 scherer 1980 emphasizes factors such as scale economies market size and entry barriers the newer literature adds concepts such as heterogeneity in tastes the strength of price competition and consumers sensitivity to sunk expenditures such as advertising spence 1976 dixit and stiglitz 1977 salop 1979 sutton 1991 but most industries are fragmentedfmost of their output is produced by small independently owned firmsfparticularly those in the service and retail sectors 1 as i describe in more detail

the seeds of dissolution discrepancy and incoherence in buyer supplier exchange in this research we examine a novel mechanism of interorganizational relationship dissolution incoherence in a partner s behavior we propose that the discrepancy between an exchange partner s opportunistic behavior and the focal firm s expectations may create a state of incoherence and uncertainty and that this effect can be damaging to the exchange even when the partner s behavior is better than expected using nearly 500 longitudinal confidential reports of industrial buyers and sellers we find supportive evidence that 1 the net effect of the discrepancy is initially positive when behavior is better than expected but becomes rapidly negative thereafter and 2 the net effect of the discrepancy is always negative when behavior is worse than expected thus these effects will generally damage the exchange even as the partner tries to improve the relationship this gives insight into why exchange relationships that hit a downward spiral can be difficult if not impossible to salvage we also show that the dysfunctional consequences of discrepancy are mitigated through exchange structures such as the magnitude of dependence on an organizational partner the development phase of the relationship and the presence of bilateral idiosyncratic investments implications for theory and the management of interorganizational relationships are developed

clustering agency costs and operating efficiency evidence from nursing home chains models of horizontal integration typically describe a trade off between multiunit efficiencies and managerial agency costs in extreme cases where managers cannot be incented contractually private ownership is thought to be the primary organizational substitute in this paper we explore geographic clustering as an alternative strategy for controlling managerial agency costs within the chain form of organization clustering may facilitate scale efficiencies in both monitoring and supervision resulting in reduced agency costs and improved application of the chain s business model we test this hypothesis in the nursing home industry which is characterized by managerial contract costs resulting from multitask models of production we find that clustered nursing homes achieve higher quality conditional on labor inputs and patient characteristics the clustering effect is concentrated on reductions in minor potential harm violations which are difficult to observe without close monitoring several proxies for local organizational experience local learning cannot account for our findings which are robust to a variety of alternative clustering definitions and competing explanations based on gaming behavior further tests indicate that chains endogenously pursue clustering presumably to realize the benefits of improved quality outcomes this paper was accepted by bruno cassiman business strategy

capturing knowledge within and across firm boundaries evidence from clinical development how do firm boundaries influence employees acquisition of information using detailed project level data and qualitative evidence i document that pharmaceutical firms are more likely to outsource the coordination of data intensive clinical trials while they are more likely to assign knowledge intensive trials to internal teams managers do not choose between market and hierarchy but between the hierarchy of the firm in which subjective performance evaluations are combined with flat explicit incentives and the hierarchy of its subcontractor whose virtue stems precisely from the ability to provide high powered incentives on a narrow set

choice of contracts in the british national health service an empirical study following major reforms of the british national health service nhs in 1990 the roles of purchasing and providing health services were separated with the relationship between purchasers and providers governed by contracts using a mixed multinomial logit analysis we show how this policy shift led to a selection of contracts that is consistent with the predictions of a simple model based on contract theory in which the characteristics of the health services being purchased and of the contracting parties influence the choice of contract form the paper thus provides evidence in support of the practical relevance of theory in understanding health care market reform

corporate environmentalism and environmental statutory permitting abstract studies have shown that despite infrequent inspections and low penalties for statutory violations a large fraction of firms comply with environmental restrictions what then motivates compliance i investigate this question by focusing on the length of time it takes environmental agencies to process and issue new source construction permits pursuant to clean air act regulations and new industrial discharge permits pursuant to clean water act regulations i find that plants or firms with fewer instances of noncompliance receive permits for major projects more quickly in addition i find that permit delays are sensitive to economic conditions as well such as local area unemployment as far as voluntary pollution control behavior is concerned i find that regulators that issue permits for plant modifications focus primarily on statutory compliance but when permitting new plant construction where there is no plant compliance history to go on voluntary pollutant releases do matter

natural gas contracts in an emerging competitive market natural gas is being viewed by many as the fuel of the 1990s and beyond because of its environmental qualities relatively low cost and significant domestic resource base however in the fall of 1991 a group of electric utility executives met with then deputy secretary of energy henson moore and asserted that an inability to obtain long term gas contracts meant that supplies are unreliable and construction of gas fueled generating stations is being discouraged this study was requested by the deputy secretary to address the issues surrounding long term gas contracts and supply reliability the relationship between supply reliability and contracts is explained in terms of the number of buyers and sellers in a market with the appropriate state regulatory policies utilities can contract for gas and obtain reliable supplies at competitive market prices public utility commissioners are encouraged to permit utilities a free choice in signing gas contracts but to allow only competitive market prices to be reflected in allowable fuel costs

the choice of organizational form the case of franchising abstract we examine companies that franchise some units and centrally operate own others the agency problems confronting these two organizational forms are analyzed testable hypotheses are developed the empirical results support the notion that owning versus franchising reflects a trade off among agency related problems the cost of monitoring store managers appears to be especially important in the own franchise decision the level of repeat business and initial investment requirements per unit also appear to be important

implementing supplier codes of conduct in global supply chains process explanations from theoretic and empirical perspectives western buying companies impose supplier codes of conduct scc on their suppliers in developing countries however many suppliers cannot fully comply with scc and some of them even cheat in scc in this research we link contract characteristics price pressure production complexity contract duration to the likelihood of supplier s commitment to scc through a mediating process how the buying companies govern their suppliers our structural equation model analysis shows that the hierarchy relational norms governance is a perfect mediator of contract characteristics effects on the likelihood of supplier s commitment the market governance an insignificant one the managerial implications are provided for successfully implementing scc in global supply chains

licensing duration in foreign markets a real options perspective licensing can be considered an initial trial of a foreign market before a firm fully commits to it through other investment modes the length of trial has great importance because licensing duration represents part of the licensing agreement when it is too short the firm may not acquire the necessary experience and knowledge of the foreign market but if it is too long the firm misses optimal expansion timing arguing that licensing can be considered as a european style real option with a fixed holding period we develop and test a model of the determinants of licensing duration in foreign markets empirical results based on a sample of firms in various countries show that uncertainty and threat of competitive pre emption in the foreign market are related to shorter duration of the technology licensing agreements we also find that irreversibility of the impending investment moderates the relationships between uncertainty and duration specifically market and technology uncertainties in the foreign market induce shorter contracts under low levels of irreversibility

international demand and liquidity shocks in a svar model of the australian economy a structural vector autoregressive model of the australian economy that allows for international shocks from the usa japan as well as world commodity prices is specified and estimated for the period 1979 1999 a block exogenous structure linking the three countries is imposed the international linkages are modelled using a factor structure to circumvent problems from estimating large scale dynamic models the factors are estimated recursively using a kalman filter and are found to represent aggregate demand and liquidity shocks for the usa and japan respectively the key empirical result is the usa shocks are the dominant source of international shocks on the australian economy with the japanese economy having a dampening effect on the usa shocks the empirical results also show that australian monetary policy responds to domestic conditions rather than international monetary policy

production and shipment lot sizing in a vendor buyer supply chain with transportation cost abstract previous research on the joint vendor buyer problem focused on the production shipment schedule in terms of the number and size of batches transferred between the two parties it is a fact that transportation cost is a major part of the total operational cost however in most joint vendor buyer models the transportation cost is only considered implicitly as a part of fixed setup or ordering cost and thus is assumed to be independent of the size of the shipment as such the effect of the transportation cost is not adequately reflected in final planning decisions there is a need for models involving transportation cost explicitly for better decision making in this study we analyze the vendor buyer lot sizing problem under equal size shipment policy we introduce the complete solution of the problem in an explicit and extended manner that has not existed in the literature we incorporate transportation cost explicitly into the model and develop optimal solution procedures for solving the integrated models all unit discount transportation cost structures with and without over declaration have been considered numerical examples are presented for illustrative purpose

complementarity and evolution of contractual provisions an empirical study of it services contracts an increasing volume of business activity appears to be occurring via alliances or other interfirm arrangements in which complex contracts are featured yet there has been relatively little study of contract design in the strategy or management literatures the economics literature on contracting has been extensive but it has been less concerned with learning and evolution phenomena in which strategy and organization scholars are deeply interested in this paper we investigate the relationship between two types of contractual provisions that are important in high technology contracts or contracts for which environmental uncertainty or technological complexity are significant namely contingency planning and task description previous research suggests that contracts can vary significantly in the degree of detail with which such key provisions are written and that they are each subject to learning in this paper we find evidence from a sample of 386 contracts that contingency planning and task description behave as complements in contractual design we argue that this complementarity reflects patterns of learning to contract we also find that repeated exchange between two firms leads to greater effort at contingency planning in subsequent contracts a finding that is also consistent with learning effects but not with frequently made claims that contracts and trust are substitutes

retail contracting and costly monitoring theory and evidence abstract we reconcile seemingly conflicting hypotheses and evidence that surface in the principal agent literature specifically we examine the literature that deals with the effect of costly monitoring on retail organizational form our principal agent model of the optimal relationship between up and downstream firms allows the principal to garner two types of imperfect signals of agent effort sales data and behavior data the model yields predictions that we confront with the econometric evidence which comes from both franchising and sales force compensation literatures we find that when variation in the informativeness and in the cost of increasing the informativeness of both signals is considered the evidence is consistent with the theory

why are different services outsourced to different countries the tradability revolution in services has led to a dramatic expansion of offshore outsourcing of services allowing firms to take advantage of lower production costs in foreign countries however production costs alone cannot explain the location determinants of offshore outsourcing of services in this paper we argue that minimizing transaction costs is also an important determinant of the location of offshore outsourcing of services we empirically analyze characteristics of services and characteristics of foreign countries that may impact on transaction costs in an outsourcing relationship and hence determine where services will be outsourced offshore we derive measures of service characteristics routineness complexity and interactiveness based on the tasks required to provide them further we posit that there are interaction effects between service and country characteristics using bureau of economic analysis data on us service outsourcing across 11 types of services to 31 countries between 1992 and 2005 we find that 1 services that are more routine less complex or less interactive are outsourced more to foreign countries 2 services are outsourced more to countries with higher institutional quality and greater cultural proximity 3 non routine complex and interactive services are outsourced relatively more to countries with a better institutional quality