the control of technology alliances an empirical analysis of the biotechnology industry we examine the determinants of control rights in biotechnology alliances through three case studies and a quantitative analysis aghion and tirole 1994 argue that control rights will be assigned so as to maximize the value of the final output as long as the r d firm has sufficient financial resources consistent with this framework the allocation of control rights to the r d firm increases with the firm s financial resources the empirical evidence regarding the relationship between control rights and the stage of the project at the time the alliance is signed is more ambiguous

multitask agency and contract choice an empirical exploration the multitask agency problem is examined empirically using contracts between private integrated oil companies and their service stations in the city of vancouver the empirical tests assess how variations in the characteristics of one task affect the choice of agent compensation scheme for another comparative statics from the model predict that higher powered incentives will be offered for gasoline sales when the secondary activity is not highly complementary with gasoline retailing where complementarity is measured by the cross price demand effect the covariation in uncertainty and the degree of effort substitutability copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

understanding corporate coherence theory and evidence abstract multiproduct firms are perceived to be coherent in their scope yet there is no strong theoretical foundations to explain coherence in modern industrial organization theory this paper shows that as u s manufacturing firms grow more diverse they maintain a constant level of coherence between neighboring activities this finding runs counter to the idea that firms with many activities are generally more incoherent a framework is then presented which appeals to the nature of enterprise learning path dependencies and the nature of the selection environment to explain the ubiquity of coherent diversifiers

a system approach to the demand for salmon in the european union this study addresses the demand for salmon in the european union a system of demand equations are specified with an almost ideal demand system aids to analyse the demand structure for fresh frozen and smoked salmon using quarterly data for the period 1984 92 the time series porperties of the data series are explored and the data series are found to be non stationary but cointegrated to avoid the invalild inference and spurious regression problems that may be created by non stationary data series the fully modified least squares fmls estimatior is utilized

reputation and the allocation of ownership we show that allocation of ownership matters even in a long term relationship where problems of opportunism are less severe unless agents are very patient ownership structure is chosen to give the agents best incentives to cooperate the optimal control structure of the static game restricts the gain from deviation to be the lowest but also the punishment will be minimal the worst ownership structure of the one shot game is good in the repeated setting because it provides the highest punishment but bad because the gain from deviation is also highest we show that when investment costs are very elastic partnership and a hostage type solution arise in equilibrium while when costs are moderately elastic the results of the one shot game apply

platform competition in two sided markets many if not most markets with network externalities are two sided to succeed platforms in industries such as software portals and media payment systems and the internet must get both sides of the market on board accordingly platforms devote much attention to their business model that is to how they court each side while making money overall this paper builds a model of platform competition with two sided markets it unveils the determinants of price allocation and end user surplus for different governance structures profit maximizing platforms and not for profit joint undertakings and compares the outcomes with those under an integrated monopolist and a ramsey planner jel l5 l82 l86 l96

a theory of firm scope the formal literature on firm boundaries has assumed that ex post conflicts are resolved through bargaining in reality parties often simply exercise their decision rights we develop a model based on shading in which the use of authority has a central role we consider two firms deciding whether to adopt a common standard nonintegrated firms may fail to coordinate if one firm loses an integrated firm can internalize the externality but puts insufficient weight on employee benefits we use our approach to understand why cisco acquired stratacom a provider of new transmission technology we also analyze delegation

competitive consequences of interfirm collaboration how joint ventures shape industry profitability recent international business research on international joint ventures focuses on how firms can use such ventures for knowledge access and learning to enhance their competitiveness thereby increasing competition in the industry by contrast research in industrial organization economics has observed that firms can also use joint ventures in various ways to attenuate competition in this paper we join these two streams of research to investigate the conditions under which joint ventures reduce or enhance competition by empirically testing the effects of different types of joint ventures on industry profitability our results suggest that joint ventures can be pro competitive or anti competitive depending on whether or not they are formed between competing firms represent foreign market entry and operate in relatively concentrated industries our paper shows the importance of adopting a contingent approach to evaluating the competitive implications of joint ventures and it also points to the value of reinvigorating international business research on the competitive context and consequences of interfirm collaboration

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

testing for substitutability in the mackerel market a new method using fractional cointegration abstractthis article seeks to extend knowledge of the mackerel scomber scombrus market in the basque country a region in spain by analysing possible relationships between this and other species with similar characteristics such as the sardine sardina pilchardus the horse mackerel trachurus trachurus and the atlantic chub mackerel scomber colias all of them landed at the ports of the basque country specifically the goal is to learn whether these other species can be considered as mackerel substitutes to that end a fractional cointegration analysis of different series of historical prices is performed using a novel method never before used in studies of this type the results indicate that mackerel have no substitutes and thus form a mono species regional market this implies among other things that their price is not influenced by the prices of other species and this should be taken into account by managers when designing management measures and policies to improve the sustainability of

an economic approach to influence activities in organizations members of organizations spend considerable time effort and ingenuity attempting to influence decision makers such influence activities may bring benefits to the organization but they also involve real costs this essay offers an economic rationale for such influence activity as representing rational self interested behavior in the presence of informational asymmetries and an analysis of how the design of the organization s structure and policies should respond to the incentives for attempting influence it is posited that information valuable for the organization s decision making is directly available only to members of the organization who have some personal stake in the decisions these individuals may then have an incentive to try to manipulate the information they develop and provide in order to influence the resulting decisions to their benefits this can be costly both in degrading the quality of decision making and in diverting the attention and effort of the organization s members from more productive activities the organization has three different methods it can employ to discourage excessive influence activities and to encourage more directly productive uses of time and effort it can limit access to decision makers and participation in decision making it can alter its decision making criteria to favor those performing well in productive activities and it can provide direct financial incentives to encourage the desired allocation of effort it is shown that an efficiently designed organization will use such financial incentives only as a last resort instead it will always first alter its decision participation policies and decisionmaking criteria

markets for ownership the prevailing economic theory of the firm based on a property rights perspective has demonstrated that ownership by dispensable outside parties is an inefficient outcome relative to ownership by productive agents in order to better understand observed patterns of ownership this paper considers the outcome of ma rkets for ownership that operate prior to production taking place the main result is that outside parties will often become the equilibrium asset owners this is precisely because but for ownership such parties would not earn rents in contrast productive agents earn rents even when they do not own assets given that their contribution is complementary with other productive agents their willingness to pay for ownership is less than that of an outside party this result is robust to the introduction of moderate levels of inefficiency arising from outside ownership and to a consideration of opportunities for re sale before production begins the main conclusion drawn is that the nature of the operation of markets for ownership stands alongside incentive effects as important predictors of firm boundaries journal of economic literature classification numbers d23 l22

complementarities momentum and the evolution of modern manufacturing in the nineteenth century the railroad and telegraph were at the center of a set of technological advances physical investments and managerial innovations that transformed american industry alfred chandler 1977 later the automobile and telephone played a similar role in another transformation today the high tech industries include computers telecommunications and electronics working on our remarkably powerful computers even as they rapidly become obsolete co authoring papers by electronic mail and fax and conversing on our portable cellular telephones we are struck by what appears to be a self supporting and reinforcing dynamic to the technological improvements across the electronics industries an advance almost anywhere in the sector seems to call forth more advances across the sector these advances are occurring contemporaneously with a broad pattern of other changes not only in the electronics industries but in manufacturing more generally and not just in hardware but in methods and organization as well a new paradigm has begun to emerge in contrast to traditional manufacturing firms modern firms frequently 1 make greater use of flexible programmable equipment and of computeraided design and manufacturing technologies 2 have fewer job classifications 3 offer more varieties of their major products and or update their product lines more frequently 4 put more emphasis on speed in order processing production and delivery 5 hold much lower inventories of intermediate and finished goods 6 rely on subcontractors to supply a greater proportion of the total value added and 7 overlap design product and process engineering to speed the introduction of new products these features of modern manufacturing firms encompass technology choices marketing strategies personnel policies supplier relations lines of internal communications and other operational policies in a far reaching and coherent pattern whose existence in the words of michael piore 1986 poses a challenge to economic theory in a recent paper milgrom and roberts 1990 proposed a theory to explain the emergence of this new paradigm arguing that the various characteristics and activities described are mutually complementary and so tend to be adopted together with each making the others more attractive in that theory the falling costs of high speed data communication data processing and flexible multitask equipment lead to increases in the directly affected activities which through a web of complementarities then lead to increases in a set of related activities as well although the costs of flexible machinery and data communication and processing surely have fallen substantially in recent decades an analysis that takes these changes as exogenous does not constitute a full explanation of the pattern of change that we observe one must ask why are these particular costs falling relative to others here we enrich the milgrom roberts analysis by adding a dynamic to it innovations in the manufacture of basic inputs both arise in response to a growing market for those inputs and simultaneously encourage that growth this reflects a fundamental complementarity between the level of any activity and investments that reduce its marginal department of economics milgrom and qian and graduate school of business roberts stanford university stanford ca 94305 we thank avner greif for his helpful comments on an earlier draft financial support from the national science foundation milgrom and roberts and the robert and anne bass faculty fellowship roberts is gratefully acknowledged

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 firm as a dedicated hierarchy a theory of the origins and growth of firms in the formative stages of their businesses entrepreneurs have to provide incentives for employees to protect rather than steal the source of organizational rents we study how the entrepreneur s response to this problem determines the organization s internal structure growth and its eventual size large steep hierarchies will predominate in physical capital intensive industries and will have seniority based promotion policies by contrast e at hierarchies will prevail in human capital intensive industries and will have up or out promotion systems furthermore e at hierarchies will have more distinctive technologies or cultures than steep hierarchies the model points to some essential differences between organized hierarchies and markets at the root of most enterprises generating economic surplus is an entrepreneur with a unique critical resource such as an idea good customer relationships a new tool or superior management technique a fundamental problem of entrepreneurship is how to enlist the cooperation of the many agents necessary for production without ceding to them too much of the surplus generated by the enterprise the risk of being expropriated however is always inherent in production in particular the entrepreneur has to give her employees whom we call managers close proximity or access to the critical resource for them to learn to produce effectively for example a manager has to understand the idea be in contact with the key customers and suppliers or even learn the entrepreneur s unique managerial techniques in order to work effectively but access also gives the manager the opportunity to expropriate this critical resource and compete against the entrepreneur managers may steal the idea walk away with clients or mimic the entrepreneur s management style and start up a rival concern the greater the access a manager has the more he can appropriate and the more effectively he can compete this paper explores the role of organizational design in

forgiveness in vertical relationships incentive and termination effects two types of contractual solutions have been proposed for resolving incentive conflicts in vertical relationships formal and relational i e enforceable or not by third parties much is known about the optimal structure of formal contracts but relatively little is known about the structure of relational contracts we study a core feature of the latter the conditions leading to continuation of the relationship whose prospect gives relational contracts their force we build a formal model of a vertical relationship between two parties that endogenizes the choice of the minimum performance necessary for continuation as a function of the values of contractibles noncontractibles and outside options the model highlights a basic trade off between providing strong incentives for the present incentive effect and safeguarding relationships for the future termination effect the stable relationships that follow from a more forgiving contract are more important under certain conditions when a lot of value is jointly created by exchange partners i e high contractible value high noncontractible value or unattractive outside options however strong incentives from a less forgiving contract are more important under other conditions when a formal contract is insufficient and a relational contract is most important i e high noncontractible relative to contractible value we discuss implications for the choice of governance of interorganizational relationships

commercialization strategies of young biotechnology firms an empirical analysis of the u s industry abstract we studied the commercialization strategies of young biotechnology companies in the united states building on previous studies by assuming that commercialization also includes intermediate forms like hierarchical or bilateral cooperation our hypotheses are derived from the resource based view transaction cost economics and property rights theory the results show that the propensity to integrate is related to the appropriability regime direct capabilities financial resources and synergies between the products our results show that the resource based view and property rights theory contribute a great deal to explaining commercialization strategies whereas transaction cost economics explains less

asset ownership and contractibility of interaction in a property rights framework i study how organizational form and quantity contracts interact in generating investment incentives the model nests standard property rights and hold up models as special cases i admit general message dependent contracts but provide conditions under which noncontingent contracts are optimal first the article contributes to the foundation of the property rights theory i characterize under which circumstances its predictions are correct when trade is contractible second i study how the optimal use of the incentive instruments depends on the environment finally the model offers a new perspective on the classic fisher body case and produces implications that are empirically testable

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

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

transaction costs and the property rights approach to the theory of the firm the standard property rights approach is focused on ex ante investment incentives while there are no transaction costs that might restrain ex post negotiations we explore the implications of such transaction costs prominent conclusions of the property rights theory may be overturned a party may have stronger investment incentives when a non investing party is the owner and joint ownership can be the uniquely optimal ownership structure intuitively an ownership structure that is unattractive in the standard model may now be desirable because it implies large gains from trade such that the parties are more inclined to incur the transaction costs

competition or compensation supplier incentives under the american and japanese subcontracting systems two fundamentally different subcontracting systems arise as distinct solutions to the quality control problem facing an input buyer the american system involves competitive bidding on each contract large orders and inspections the japanese system involves repeat purchases from a supplier who earns a premium small orders and no inspections both systems may coexist as local solutions but the global optimum is determined by the ratio of set up to inspection costs this suggests that the adoption of flexible manufacturing equipment and rising product complexity may be responsible for the shift from the american to the japanese system observed in many industries copyright 1997 by american economic association

guyana gold a unique resource curse this article offers explanations for the underwhelming economic performance of guyana a country heavily dependent on the revenue generated from gold mining here government intervention has spawned a gold mining sector which today is comprised exclusively of local small and medium scale operators but whilst this rather unique model appears to be the ideal blueprint for facilitating local development the country seems to be experiencing many of the same setbacks that have beset scores of other resource rich developing world economies unless these problems are anticipated properly diagnosed and appropriately tackled a resource curse type outcome is inevitable irrespective of the context

long run price flexibilities for high valued uk fish species a cointegration systems approach in this paper the own and cross price flexibilities for four high valued species bass lobster sole and turbot landed in the uk are estimated system of equation models were developed using the vector error correction model vecm approach johansen s multivariate approach was used to obtain estimates of the long run steady state relationship vectors between fish prices and landings to find unique vectors i e no interdependent vectors zero restrictions on the coefficients of the price variables were applied so that the model effectively contained quantity independent variables only the resulting vectors were four unique cointegration long run relationships of monthly fish prices and landings various tests suggested that the variables were i 1 nonstationary variables the model also suggested that there are more than one cointegration vectors relationships between the variables it was found that bass has the largest absolute long run own price flexibility bass and lobster were found to be

control and contract design in research collaborations a complete contract perspective abstract incumbent firms especially in high tech industries often contract and collaborate with small research units on single projects a delicate resulting contracting decision thus is how to allocate control this paper considers the incumbent s problem to design a research contract that specifies the allocation of control the unit s research input and its monetary compensation contracting is complicated by the unit s private information about its technological skills research outputs also are not verifiable control affects the distribution of the private benefits from research and can be shared from a complete contract perspective an allocation of control that is contingent on the unit s reported information provides the incumbent an additional instrument for designing the incentives control can generate countervailing incentives and mitigate the limitations of contracts in research environments to the point of extracting the full surplus the analysis further clarifies when control is centralized by the incumbent when it is shared between the parties and when it is delegated to the unit

on the contractual governance of research collaborations allocating control and intellectual property rights in the shadow of potential termination abstract this paper investigates the governance design problem of a large company that wants to engage a small and cashless firm into a research collaboration this analysis reflects the frequently observed collaborations between pharma companies and biotechs and an actual research contract is assessed to link theory to practice the governance form refers to the allocation of control rights over the research process and property rights over research output s as determined by the initial contract yet this contract is incomplete the parties negotiate at a later stage from bargaining positions that depend on the initial choice of the governance but they also contemplate the possibility that the collaboration will be terminated by means of a simple model that captures the core aspects of the contractual environment i answer a key research question how should governance be designed in the shadow of potential termination to provide the research firm with the incentives to invest in the collaboration first it is in the company s interest to choose a governance form that eliminates the possibility of termination and stabilizes the collaboration whenever possible second if the collaboration cannot be stabilized the company faces a trade off between reducing the probability of termination and providing incentives which is ultimately resolved by making the collaboration highly unstable third property rights and control are substitutes in the governance design if the company collects more property rights it must relinquish more control rights

causality in demand a co integrated demand system for trout in germany this article focuses on causality in demand a methodology where causality is imposed and tested within an empirical co integrated demand model not prespecified is suggested the methodology allows different causality of different products within the same demand system the methodology is applied to fish demand on the german market for farmed trout and substitutes it is found that supply sources i e aquaculture and fishery are not the only determinant of causality storing tightness of management and aggregation level of integrated markets might also be important the methodological implication is that more explicit focus on causality in demand analyses provides improved information the results suggest that frozen trout forms part of a large european whitefish market where prices of fresh trout are formed on a relatively separate market redfish is a substitute on both markets the policy implication is that increased production of trout causes a downward pressure on fresh trout prices but froz

co ownership of intellectual property exploring the value appropriation and value creation implications of co patenting with different partners combining both interview data and empirical analyses at the patent and firm levels we explore the value appropriation and value creation implications of r d collaboration resulting in the co ownership of intellectual property i e co patents we make an explicit distinction between three different types of co patenting partners intra industry partners inter industry partners and universities our findings indicate that the value appropriation challenges of ip sharing are clearly evident with intra industry co patenting where partners are more likely to encounter overlapping exploitation domains co patenting with universities is associated with higher market value since appropriation challenges are unlikely to play a role and collaboration may signal novel technological opportunities although we find some evidence that co patenting corresponds to higher patent value patents co owned with firms are significantly less likely to receive self citations indicating constraints on the future exploitation and development of co owned technologies

the impact of competition on make or buy decisions evidence from the spanish local tv industry this paper empirically investigates whether changes in product market competition affect firm boundaries exploiting regulation induced shocks to entry barriers and differences in regulation enforcement across cities to obtain exogenous variation in competition we establish a negative causal effect of competition through reduced entry barriers and a larger number of rival firms on vertical integration in the setting of the spanish local television industry between 1995 and 2002 data and the online appendix are available at https doi org 10 1287 mnsc 2016 2633 this paper was accepted by bruno cassiman business strategy

a dominant firm model of price determination in the us fresh salmon market 1985 88 in this paper a dominant firm pricing model is used to examine price determination in the us imported farmed salmon market for the period 1985 88 in the 1980s us imports of fresh and frozen salmon increased rapidly with norway supplying nearly 80 of farmed salmon the model assumes that norwegian suppliers recognize their dominant position in the market and set the level of supply to the us to achieve a price that will maximize profits the model does well in explaining variations in the price of farmed salmon over the period of study and is used to study recent allegations that norwegian salmon have been dumped in the us market

making concessions extractive enclaves entangled capitalism and regulative pluralism at the gold mining frontier in burkina faso summary this paper studies the regulation of concessions in the global gold mining rush the liberalization of the gold mining sector has given way to complex forms of regulation where non state and illegal mining entrepreneurs compete in governing mining extraction taking the case of gold mining in burkina faso this paper analyses the conditions and dynamics under which such complex regulation takes place we draw on extensive ethnographic fieldwork conducted in northern burkina faso in particular the burkinabe mining sector we argue that enclave economies in the gold mining sector are co produced by state and market regulation through a plurification of regulatory authority this plurification is the effect of competition among different frontier entrepreneurs who seek to broker regulatory authority in mining concession sites we show that concession sites are not discrete extractive enclaves but are better understood as indiscrete sites that are entangled in local politics and social relations rather than thinning social relations as is often claimed we observe that enclave economies thicken politics around concessionary regimes where governmental bodies re emerge as an arbitrating regulatory force these findings problematize policy prescriptions to formalize the gold mining sector and draw attention to the role of the state in re producing frontier entrepreneurs with unequal political rights to claiming concessions

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

the salesperson as outside agent or employee a transaction cost analysis this descriptive study explores the reasons for integration of the personal selling function i e the use of employee direct salespeople rather than manufacturers representatives reps a hypothesized model is developed based on both transaction cost analysis and the sales force management literature data from 13 electronic component manufacturers covering 159 u s sales districts are used to estimate a logistic model of the probability of going direct in a given district results are shown to be stable across specification and estimation methods and to fit the data well the transaction cost model is generally supported the principal finding is that the greater the difficulty of evaluating a salesperson s performance the more likely the firm to substitute surveillance for commission as a control mechanism i e to use a direct sales force among other findings direct sales forces are also associated with complex hard to learn product lines and with districts that demand considerable nonselling activities several factors prove unrelated including company size the amount of travel a district requires and the importance of key accounts this article was originally published in marketing science volume 4 issue 3 pages 234 254 in 1985

price formation of fish an application of an inverse demand system inverse demand systems explain price variations as functions of quantity variations they have properties analogous to those of regular demand systems there are very few examples of their empirical application in part this is due to lack of data for which price is the decision variable and the quantity given the case of fish landed at belgian sea ports appears to suit an inverse demand system well a rotterdam variant of such a system in estimated allais interaction intensities have been derived and show a reasonable pattern

organizing knowledge processes in the multinational corporation an introduction this introduction discusses the contrast between on the one hand the current popularity of addressing mnc organization in knowledge terms and on the other the lack of adequate understanding of many of the causal mechanisms and contextual factors in relations between knowledge processes and organizational factors a number of the relevant research challenges are identified and it is clarified how the five articles in this focused issue addresses some of these

the demand for salmon in france the effects of marketing and structural change two aspects of change in the market for salmon in france during the 1980s are the subject of econometric analysis first an hypothesis that a change in the distribution pattern for salmon with a larger share of the product traded further down the distribution channel has lead to more elastic demand is tested via demand analysis second the effects of advertising in expanding the salmon market is tested

does asset ownership always motivate managers outside options and the property rights theory of the firm this paper studies the grossman hart moore ghm property rights approach to the theory of the firm under alternating offers bargaining when managers can pursue other occupations while negotiating over the division of the gains from cooperation the ghm results obtain if taking the best alternative job terminates bargaining outcomes are very different sometimes an agent with an important investment decision should not own the assets he works with sometimes independent assets should be owned together sometimes strictly complementary assets should be owned separately

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

the boundaries of the firm revisited why do firms exist what is their function and what determines their scope these remain the central questions in the economics of organization they are also central questions for business executives and corporate strategists the worldwide volume of corporate mergers and acquisitions exceeded 1 6 trillion in 1997 it is hard to imagine that so much time effort and investment bankers fees would be spent on adjusting firm boundaries unless there was some underlying economic gain indeed the exceptional levels of merger and acquisition activity over the past two decades are a strong indication that economically significant forces do determine organizational boundaries the study of firm boundaries originated with the famous essay by coase 1937 who raised the question of why we observe so much economic activity inside formal organizations if as economists commonly argue markets are such powerful and effective mechanisms for allocating scarce resources coase s answer was in terms of the costs of transacting in a world of imperfect information when the transaction costs of market exchange are high it may be less costly to coordinate production through a formal organization than through a market in large part thanks to the work of williamson 1975 1985 recent decades have seen a resurgence of interest in coase s fundamental insight that firm boundaries can be explained by efficiency considerations our understanding of firm boundaries has been sharpened by identifying more precisely the nature and sources of transaction costs in different circumstances in the process the focus of

ownership and control rights in internet portal alliances 1995 1999 we examine the structure of more than 100 alliances by internet portals and other firms between 1995 to 1999 from a contract theory perspective models of incomplete contracts frequently invoke unforeseen contingencies the cost of writing contracts and the cost of enforcing contracts in justifying the assumption of incompleteness the setting in which internet portals formed alliances was rife with these sorts of transaction costs we argue that these alliances can be viewed as incomplete contracts and find that the division of ownership and the allocation of control rights are consistent with the incomplete contracting literature copyright 2003 by the rand corporation

choosing to cofinance analysis of project specific alliances in the movie industry we use a movie industry project by project dataset to analyze the choice of financing a project internally versus financing it through outside alliances the results indicate that project risk is positively correlated with alliance formation movie studios produce a variety of films and tend to develop their safest projects internally our findings are consistent with internal capital market explanations we find mixed evidence regarding resource pooling i e sharing the cost of large projects finally the evidence shows that projects developed internally perform similarly to projects developed through outside alliances

consumer choices for quality and sustainability labelled seafood products in the uk there has been a growing interest in recent years in the potential use of product differentiation in seafood products mainly through eco type labelling as a means of promoting and rewarding the sustainable management and exploitation of fish stocks the potential encapsulated by product differentiation has however yet to be tested in the market place within many countries including the uk this paper draws on a study exploring the nature and extent of the response of uk consumers to the introduction of labelled seafood products and explores the potential of product differentiation to promote sustainable fisheries from the results presented in this paper the scale of the effect has been shown to be greater for sustainability and quality forms of product differentiation than the effect generated by any of the other potential labels the origin and mode of production also generated sizeable and significant effects these results suggest that moves underway to implement certification schemes can be justified in support of sustainable fisheries management the important policy implication is that improvement in the supply side management of fisheries will be needed to facilitate more widespread adaptation of certification schemes nonetheless the opportunities for higher premiums and greater market share due to certification will provide additional incentives for the required management improvements

network prominence bargaining power and the allocation of value capturing rights in high tech alliance contracts we suggest and provide empirical evidence that the bargaining power of alliance partners stemming from their prominence in alliance networks influences the ex ante allocation of value capturing rights in high tech alliance contracts network prominence can enhance the availability of alternative partners for a firm and thereby elevates the firm s bargaining power and enables the firm to receive i more value capturing rights vis a vis its partner i e more net value capturing rights and ii more rights to the unexpected outcomes vis a vis its partner we empirically investigate the content of research and development r d collaboration contracts between biotech and pharmaceutical firms and show that as the prominence of the client i e pharmaceutical firm increases it is able to attain i more net value capturing rights to outcomes within the area of collaboration and ii more rights to unexpected outcomes by contrast increased prominence of the r d firm i e biotech firm decreases both t

are internal capital markets efficient using segment information from compustat we find that the investment by a segment of a diversified firm depends on the cash flow of the firm s other segments but significantly less than it depends on its own cash flow the investment by segments of highly diversified firms is less sensitive to their cash flow than the investment of comparable single segment firms the sensitivity of a segment s investment to the cash flow of other segments does not depend on whether its investment opportunities are better than those of the firm s other segments

perspectives on positive political economy this volume serves as an introduction to the field of positive political economy and the economic and political processes with which it is concerned this new research tradition is distinct from both normative and historical approaches to political economy grounded in the rational actor methodology of microeconomics positive political economy is the study of rational decisions in a context of political and economic institutions more analytical than traditional approaches it is concerned with the derivation of principles and propositions against which real world experience may be compared its focus is on empirical regularities and its goal is theoretical explanation the field has focused on three main areas of research models of collective action constraints on competitive market processes and the analysis of transaction costs developments in all of these areas are covered in the book the first part of the volume surveys the field while the second part displays positive political economy at work examining a variety of subjects the final part contains essays by leading political economists on the theoretical foundations of the field

the performance of corporate alliances evidence from oil and gas drilling in the gulf of mexico abstract i use data on oil and gas drilling in the gulf of mexico to measure how a corporate alliance a group of firms that jointly develops an offshore tract performs relative to a solo firm i employ a regression discontinuity strategy based on bids in first price sealed bid auctions for the rights to develop leases by focusing on leases where one organizational form narrowly outbids the other i measure drilling outcomes while controlling for the endogenous matching of projects and organizational forms solo firm leases are less profitable than alliance leases because alliance members combine their information and expertise

agency and strategic contracts theory and evidence from r d agreements in the pharmaceutical industry we examine the use of strategic rights in research and development r d agreements between a client and an agent when an entrant may compete with the client for the license of non contracted discoveries developed by the agent the agent puts effort either in the contracted project or into other r d activities which can result in non contracted discoveries strategic rights help the client and the agent extract rent from the entrant and also motivate the agent to place effort into the contracted project accordingly firms are more likely to adopt strategic rights when the likelihood of entry is larger moreover strategic rights and termination rights are substitutes in mitigating agency problems by investigating r d agreements between pharmaceutical clients and bio tech agents we find consistent evidence of the positive impact of entry threat on the use of strategic rights as well as evidence of the substitution between strategic rights and termination rights

the timing of mergers along the production chain capital structure and risk dynamics abstract i demonstrate that the timing of vertical mergers is generally dependent on industry characteristics my predictions are consistent with empirically observed patterns of vertical mergers i show that merger activity during economic upturns tends to be motivated by operating efficiencies while merger activity during economic downturns tends to occur as a means of keeping production chain operational mergers allow firms to capture synergies and improve efficiencies in order to survive economic contractions the pricing framework implies that a vertical merger decision usually reduces risk during two different economic states

formal contracts in the presence of relational enforcement mechanisms evidence from technology development projects formal contracting addresses the moral hazard problems inherent in interfirm deals via explicit terms designed to achieve incentive alignment alternatively when firms expect to interact repeatedly relational mechanisms may achieve similar results without the associated costs however as we now know from a growing body of theoretical and empirical work the resulting intuition that relational mechanisms will be substituted for formal ones whenever possible does not generally hold the extent to which firms substitute relational mechanisms for formal ones in the presence of repeated interaction is an empirical question that forms the basis of this paper we study a sample of 52 joint technology development contracts in the telecommunications and microelectronics industries and devise a coding scheme to allow empirical comparison of contract terms counter to the above intuition but consistent with recent research we find that a firm s contracts are more detailed and more likely to include penalties when it engages in frequent deals whether with the same or different partners our results suggest complementarity between formal and relational contracts and have implications for optimal contracting particularly in high technology sectors

the multidimensionality of exclusion in the small scale gold mining sector in guyana institutional reform landlordism and mineral uncertainty abstract proponents of formalization argue that bringing artisanal and small scale mining asm into the legal sphere represents the best way of enabling social and economic development critics counter that formalization policies can be a source of exclusion for smaller producers as new properties become difficult and expensive to access and new regulatory standards prove beyond the technical and financial capacity of smaller operators guyana s long formalized asm gold mining sector offers a useful lens through which to examine these arguments this article finds that guyana s relatively established and egalitarian asm sector has become the site of various complex exclusionary dynamics on the one hand the impacts of increasingly restrictive state led forms appear to support contentions about how formal mining environments tend towards the exclusion of smaller operators on the other hand evidence shows that it is not merely state policies that are responsible for exclusion but further social and ecological factors such as landlord tenant relations and the depth and scarcity of mineral deposits overall these findings offer new perspectives on asm dynamics within formalized institutional environments they suggest that understanding exclusion can be aided by adopting an analytical lens capable of capturing the complex interactions between a range of social and ecological phenomena

incomplete contracts and the choice between vertical integration and franchising abstract previous studies have demonstrated that geographical dispersion of outlets leads to an incentive for firms to franchise geographical dispersion alone however does not provide a full explanation of the firm s decision to franchise certain industries with highly dispersed retail outlets such as supermarkets almost never franchise this paper uses the incomplete contracting paradigm to demonstrate how the inability to contract over local outlet costs can drive the firm s decision to franchise or integrate since only owners have incentives to reduce cost ownership of the local outlet should rest with the party with the greatest ability to control cost the theory is then applied to several industries