pragmatic collaborations advancing knowledge while controlling opportunism this paper starts from the observation that firms are increasingly engaging in collaborations with their suppliers even as they are reducing the extent to which they are vertically integrated with those suppliers this fact seems incompatible with traditional theories of the firm which argue that integration is necessary to avoid the potential for hold ups created when non contractible investments are made our view is that pragmatist mechanisms such as benchmarking simultaneous engineering and root cause error detection and correction make possible learning by monitoring a relationship in which firms and their collaborators continuously improve their joint products and processes without the need for a clear division of property rights we argue that pragmatic collaborations based on learning by monitoring both advance knowledge and control opportunism and thus align interests between the collaborators copyright 2000 by oxford university press

the neoclassical trojan horse of steady state economics the vision of a steady state economy elaborated by herman daly describes an economy that uses materials and energy within the regenerative and assimilative limits of the planet s ecosystems sustainable scale just distribution and efficient allocation are its constitutive theoretical goals this paper is a critique of the theoretical foundations of steady state economics it argues that steady state economics consists in an attempt to squeeze neoclassical economics into a biophysical and ethical corset as a result many fundamental flaws and criticisms of neoclassical economics remain as a consequence steady state economics does not lead to a radical departure from or improvement upon neoclassical theory but rather to fundamental internal inconsistencies between the old economics paradigm and new progressive ecological economic thinking contradictions appear at various levels ranging from ontology and methodology to theory and values as daly has pioneered the foundations of ecological economics with his thinking these ambiguities are not only problematic for steady state economics but ecological economics as a field more generally the paper concludes that ecological economics has to let go of neoclassical foundations as they contradict its core values and ambitions a new and consistent theory of political economy of the environment along heterodox lines is needed

modularity in technology and organization this paper is an attempt to raid both the literature on modular design and the literature on property rights to create the outlines of a modularity theory of the firm such a theory will look at firms and other organizations in terms of the partitioning of rights understood as protected spheres of authority among cooperating parties and it will assert that organizations reflect nonmodular structures that is structures in which decision rights rights of alienation and residual claims to income do not all reside in the same hands 2002 elsevier science b v all rights reserved

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

the intrinsic limits of modern economic theory the emperor has no clothes assumptions of the uniqueness and stability of general equilibrium in a walrasian framework have no theoretical justification this paper argues that the key reason for this is that the walrasian model treats people as acting independently of one another especially in their demand behavior this independence plays an essential role in constructing economies with arbitrary excess demand functions thus making individual behavior dependent or similar may open the way to obtaining meaningful restrictions on aggregate excess demand functions copyright 1989 by royal economic society

the firm as a nexus of treaties part 1 knowledge its acquisition sharing and or asymmetry the participatory generation of information rents and the theory of the firm masahiko aoki common knowledge and the co ordination of economic activities jacques cremer profit sharing information and employment matti pohjola part 2 vertical integration and the strategic management of the enterprise what is vertical integration michael h riordan vertical integration transaction costs and learning by using kurt lundgren the firm as a nexus of internal and external contracts torger reve part 3 issues of labour organization the viability of worker ownership an economic perspective on the political structure of the firm henry hansmann intellectual skill and the role of employees as constituent members of large firms in contemporary japan kazuo koike the implicit contract for corporate law firm associates ex post opportunism and ex ante bonding robert h mooking part 4 finance and the political structure of the firm capital structure as a mechanism of control a comparison of financial systems erik berglof long term contracts in financial markets hakan lindgren the principle of external accountability in competitive markets herbert gintis union militancy and plant designs kar ove moene can transaction cost economics explain trade associations marc schneiberg and j rogers hollingsworth

aggregate structural macroeconomic analysis a reconsideration and defence aggregate structural macroeconomic analysis asma is frequently criticised for being ad hoc and justified if at all only as a pragmatic expedient this paper argues instead that asma is consistent with the principles of well established bodies of social theory appeal to these principles reveals that asma is adequate and likely even necessary for the successful prosecution of macroeconomic inquiry

cooperation between rivals informal know how trading it has long been recognized that it is difficult for an innovating firm to fully appropriate the benefits arising from its innovations and that desired research might therefore not be performed nelson 1959 pp 297 306 one sometimes possible solution to this dilemma is cooperative r d conducted by firms who share the costs and benefits of particular r d projects johnson 1973

transformations of the commodity space behavioral heterogeneity and the aggregation problem aggregation in exchange markets is studied by imposing restrictions on distributions of the households characteristics approximate bounds for market demand price elasticities that depend upon specific measures of behavioral heterogeneity are provided increasing behavioral heterogeneity makes aggregate expenditures more independent of prices this has strong consequences for the prevalence in the aggregate of the weak axiom of revealed preference of gross substitutability and on uniqueness and stability of the walrasian exchange equilibrium these strong macroeconomic regularities are obtained essentially through distributional assumptions as no rationality requirements are imposed on individual demand functions other than homogeneity and walras law journal of economic literature classification numbers d11 d41 d50 el 1992 academic press lnc there are still quite a few unpleasant gaps nowadays between macroanalysis and microanalysis of socioeconomic systems a leading instance drawn from social choice theory is arrow s celebrated impossibility theorem 1 which states that any attempt to aggregate individual preferences into a consistent social ordering or a collective choice procedure satisfying a few appealing requirements is bound to fail the impossibility arises however only if one insists that the procedure should work for every possible environment or in other words for all distributions of individual preferences a possible resolution of the problem is therefore to identify broad classes of distributions of preferences for which aggrega the bulk of the research reported in this paper was essentially done at yale university during the fall semester of 1990 i thank all my colleagues for their support and comments especially martin shubik herbert scarf and truman bewley i also had very useful conversations with jorgen weibull mike jerison andreu mas colell christian gouri6roux camille bronsard guy laroque bruno jullien and bernard caillaud i am much indebted to ai klevorick for his comments on an earlier draft but my greatest debt is to werner hildenbrand whose pioneering insights and stubborn insistance have over the years kept quite a few of us struggling beyond the fads of the moment with the aggregation problem our profession is fortunate indeed to have him around

network externality an uncommon tragedy economists have defined network externality and have examined putative inframarginal market failures associated with it this paper distinguishes between network effects and network externalities where the latter are market failures the authors argue that while network effects are important network externalities are theoretically fragile and empirically undocumented some network externalities are merely pecuniary network ownership or transactions among network participants can internalize some network effects the type of market failure that has been associated with these externalities is a transition problem that has little to do with externality

behind methodological individualism methodological individualism has become a more fashionable slogan for economistsin recent years in specific terms we are being urged to accept a doctrine within whichall explanations of social phenomena have to be couched in terms of statements aboutindividuals however the term has a wide and sometimes ambiguous usage and is beingemployed as a packaging for all kinds of methodological and theoretical prescriptions forexample it has been regarded as a commandment that thou shalt where possible placemacroeconomic statements on firm microeconomic foundations e g blaug 1980 or aninjunction against reckless aggregation particularly in regard to welfare criteria orsocial welfare functions e g kirzner 1980 littlechild 1978 or as an inspiration forrecent theoretical developments in economics with pro market policy conclusions e g furubotn and pejovich 1974 one of the further problems in discussing this topic is that often the term methodo logical individualism carries an ideological charge indeed by both advocates and itsopponents it is too frequently confused with individualism of a political variety however the connection between political and methodological individualism is merely assumed bythese supporters or critics or supported by cursory argument it is never demonstratedwith any rigour although there is a lack of uniformity in the use of the label it is argued here that the keyelement in the classic statements of methodological individualism is a refusal to examinethe institutional or other forces which are involved in the moulding of individual pref erences and purposes we are thus confronted with a remarkable optimism about thepossibility of explanation of social phenomena in terms of individuals but an extremereluctance to give even partial explanations of individual behaviour in social or evenpsychological terms this refusal is both dogmatic and as will be argued below unaccept able on analytical grounds this reduction of explanation and thereby causality solely to individuals has a furtherimplication the explanation of social phenomena proceeds even by a circuitous route

the microfoundations project in general equilibrium theory the author 1 argues that the long lived microfoundations project based on general equilibrium models has come to an end and 2 shows that non walrasian models intended to provide microfoundations for macroeconomics are inadequate the arguments are derived from the sonnenschein mantel debreu smd demonstration of the arbitrariness of aggregate excess demands in general equilibrium models of the walrasian arrow debreu mckenzie type the issues raised have significance for the proper method of modeling macroeconomic phenomena for instance the smd results have led a growing number of general equilibrium theorists to make assumptions concerning macroeconomic structure in order to analyze other regularities at the macro level these points validate the position that systematic macroeconomic phenomena are intrinsically macroeconomic copyright 1994 by oxford university press

the existence of equilibrium in discontinuous economic games i theory the article presents information about the existence of equilibrium in discontinuous economic games in this paper and its sequel presents study the existence of nash equilibrium in games where agents payoff functions are discontinuous the enquiry is motivated by a number of recent studies that have uncovered serious existence problems in seemingly innocuous economic games in the sequel to this paper authors have explained the utility function in the economic games referred to earlier are neither continuous nor quasi concave however they demonstrate that the payoff functions in mildly modified versions of these constructs exhibit two weaker forms of continuity which together with the requirement of quasi concavity suffice for the existence of an equilibrium from this one may conclude that at least in the modified versions of these models discontinuities in the payoff functions are not the real source of the problem rather it is the failure of the payoff functions to the quasi concave which is responsible for the non existence of equilibrium these observations bear on the existence of nash equilibrium in pure strategies

knowledge based approaches to the theory of the firm some critical comments it is argued that kogut and zander kogut b u zander 1992 knowledge of the firm combinative capabilities and the replication of technology organ sci 3 383 397 and conner conner k r 1991 a historical comparison of resource based theory and five schools of thought within industrial organization economics do we have a new theory of the firm j management 17 121 154 erred in the specific way in which they claimed that a distinct theory of the multi person firm can be constructed on the basis of a theory of organizational knowledge or from resource based insights it is not possible to tell very much of a story about why there should be firms in lieu of notions such as opportunism or moral hazard however properly interpreted knowledge based theories may help shed light on issues relating to the boundaries and internal organization of the firm

frank knight on risk uncertainty and the firm a new interpretation we attempt to interpret frank knight by taking him on his own terms among our conclusions are the following 1 knight s distinction between risk and uncertainty is not solely a distinction between insurable and uninsurable risk 2 knight s explanation for the existence of firms does not reduce to a moral hazard theory except perhaps in the broadest and least interesting sense and 3 knight s treatment of the problem of the separation of ownership from control is not as obviously wrong as commentators have made it out to be

book reviewsfirms contracts and financial structure clarendon lectures in economies by oliver hart oxford oxford university press 1995 pp vill 228 49 95 cloth 22 00 paper

is the firm an individual this paper shows how three new institutionalist theories try but ultimately fail to support the firm as individual thesis first marx hart s idea of property rights and coase williamson s notion of transaction costs are insufficient to substantiate the market firm dichotomy second hayek s constructionist view presents the firm as opposed to the market as a designed order no different from artifacts such as tables and cars third vanberg s constitutionalist theory also fails to support the firm as individual thesis the paper suggests that the consented goal notion is a fruitful ground upon which to build the firm as individual thesis

a model of imperfect competition with keynesian features the recent literature on the reappraisal of keynes has viewed keynesian equilibria as arising when prices are fixed and effective demands and supplies are equilibrated through the adjustment of quantities one problem with this approach is that it lacks a theory of price determination in particular of why prices are fixed in the present paper we show that a number of keynesian features arise in a model in which prices are fully flexible but where agents have some monopoly power one advantage of this approach is that it provides a theory of the determination of both prices and quantities

the approach of institutional economics this paper assesses the old institutional economics it emphasizes the importance of key old institutionalist themes concerning the necessity of habits and rules and the role of institutions a problem in the alternative theoretical program of the new institutionalism is the untenability of its assumption of an original institution free market or state of nature even optimizing behavior requires the prior existence of habits and rules although it still lacks a complete and systematic theory the evolutionary approach of the old institutionalists tackles the problem of the interactive relationship of actor to structure without analytical reduction to one or the other

competence and contract in the theory of the firm abstract the coase williamson response to the question why do firms exist is based on the idea that transaction costs in viable firms are lower than they would be if production was coordinated through the market the explanatory focus of this argument is on the diminution of costs related to transactions between given individuals however this ignores the possibility of activities which are in principle non contractible including aspects of the process of production further the reliance on comparative statics in transaction cost theory downplays the distinctive kind and rate of human learning that takes place within firms this paper argues that work on organizational learning and cultural transmission reinforces a competence based explanation of the existence and relative efficiencies of firms and this approach can also provide answers to the original question posed by coase accordingly the development of a research program involving a conjoint evaluation of both competence based and transaction cost approaches is proposed

networks and innovation in a modular system lessons from the microcomputer and stereo component industries in this paper we examine theoretically and through case studies the phenomenon of the modular system which we distinguish from a product conceived of as a prepackaged entity or appliance we argue that such systems offer benefits on both the demand side and the supply side supply side benefits include the potential for autonomous innovation which is driven by the division of labor and provides the opportunity for rapid trial and error learning demand side benefits include the ability to fine tune the product to consumer needs and therefore blanket the product space more completely both of our case studies suggest that innovation in a modular system can lead to vertical and horizontal disintegration as firms can often best appropriate the rents of innovation by opening their technology to an outside network of competing and cooperating firms we conclude by speculating on the increased importance of modular systems in the future since flexible manufacturing and rising incomes are likely to increase the driving requisites of modular systems low economies of scale in assembly and sophisticated consumer tastes

more critical comments on knowledge based theories of the firm this paper continues the critique of knowledge based theories of the firm that was undertaken in foss foss n j 1996a knowledge based approaches to the theory of the firm some critical comments organ sci 7 5 470 476 specifically criticizing the reasoning in kogut and zander kogut b u zander 1996 what firms do coordination identity and learning organ sci 7 5 502 518 and conner and prahalad conner k r c k prahalad 1996 a resource based theory of the firm knowledge versus opportunism organ sci 7 5 477 501 i argue that kogut and zander kogut b u zander 1996 what firms do coordination identity and learning organ sci 7 5 502 518 attempt to explain firm organization in terms of a preference for such organization a distinctly non economic mode of explanation and that conner and prahalad fail to sufficiently characterize the nature of the firm because they identify firm organization with the employment contract and neglect asset ownership

multiplicity of equilibria and comparative statics conditions that guarantee the uniqueness of equilibrium in models of economic competition are crucial to applications of these models in exercises of comparative statics until now most of the attention given to the uniqueness question has been focused on pure exchange economies in this paper we use a topological index theorem to derive necessary and sufficient conditions for the uniqueness of equilibrium in economies with production unfortunately conditions that imply uniqueness appear to be too restrictive to have much applicability we argue for example that the only economically interpretable restrictions that imply uniqueness are either that the demand side of an economy behaves like a single consumer or that the supply side is an input output system our results suggest a need for reformulation of the comparative statics method

the effect of the financial sector on the evolution of oil prices analysis of the contribution of the futures market to the price discovery process in the wti spot market abstract the aim of this article is to empirically measure the contribution of the futures market to the price discovery process in the spot market for benchmark crude oils specifically that for west texas intermediate wti for this purpose we test the hypothesis that the recent evolution of the financial markets has affected the future oil market so as to increase its contribution to the price discovery process of the spot market we modeled the relation between wti spot and future prices as a cointegration relation by using the kalman filter technique it was possible to obtain a time varying measure of the contribution of future markets to the price discovery mechanism the results show that in the case of wti the contribution of the futures market has been increasing especially between 2003 and 2008 and then again after the start of 2009 evidencing the growing importance of factors particular to the financial markets in determining oil prices in recent years during 2009 the spot prices adjusted to agents future expectations rather than to the current supply and demand conditions

the new keynesian view of aggregate demand some reflections from a classical sraffian standpoint the paper argues that the derivation of the aggregate demand curve in the new keynesian literature is insufficient to provide the theoretical ground for the use to which it is usually put namely as a theoretical basis for the claim that long run wage and price flexibility would push a capitalist economy to the full employment or natural level of output it is argued that the derivation solely on the basis of the propositions about optimising household consumption expenditures is insufficient to guarantee a decreasing aggregate demand function without circular reasoning this point is clarified by use of a very simple two commodity production model of long run steady states due to spaventa and nell to guarantee a decreasing aggregate demand function the new keynesian approach must invoke the kinds of propositions used in more traditional derivations propositions which themselves are in question on capital theoretic grounds

macroeconometric modeling and the theory of the representative agent the lucas critique of econometric policy evaluation 1976 argues that to the extent econometric models do not capture the primitive parameters of tastes and technology their coefficients can be expected to vary with changes in policy regimes several econometricians have undertaken empirical work that separates the parameters of tastes technology and policy estimating models that are in principle immune from this critique exemplary contributors to this effort have been thomas sargent 1978 and sargent and lars hansen 1980 the empirical work inspired by the lucas critique has proceeded using representative agent models and aggregate data the treatment of expectations and dynamic optimization has been careful although at times necessarily limited by the analytical requirements of attaining closed form solutions for dynamic programming problems under uncertainty potential problems due to aggregation have usually been ignored although when preferences and technology are quadratic it appears that they can be disposed of quickly assuming a representative firm is only a convenience as the model admits a tidy theory of aggregation sargent 1978 p 1016 it is ironic that a paradigm that emphasizes the isolation of the primitive parameters of tastes and technology has led to empirical work that has ben conducted almost exclusively with aggregate data there are exceptions t macurdy 1983 j biddle 1984 there are several difficulties with this development first the fact that representative agent models with exact aggregation can be constructed is unrelated to whether or not these models are adequate we can also construct models in which agents behavior is unaffected by the policy regime to exclusively model and test one but not the other appears to be a misplacement of emphasis second some of this work has proceeded using representative agents whose behavior cannot be aggregated exactly see m eichenbaum hansen and kenneth singleton 1984 for an example there is a third and most fundamental objection to empirical work which seeks to avoid the lucas critique yet uses aggregate data whenever econometric policy evaluation is undertaken using models estimated with aggregate data it is implicitly presumed that the aggregator function is structural with respect to the policy intervention in question formally aggregator functions are no more structural than are within regime reducedform relations of endogenous to policy variables as a modeling strategy ignoring the sensitivity of aggregators to policy changes seems no more compelling than ignoring the dependence of expectations on the policy regime this paper describes a very modest econometric model in which the effects of ignoring aggregation and of ignoring expectations each within the context of several representative agent models can be appreciated objective functions are quadratic and prices are disparate across agents in these respects the model s assumptions are in the mainstream of lucas and subsequent empirical work the model is carefully contrived so that exact aggregation is always possible this is not essential to the argument in any way but it drastically reduces the number of circumstances to be examined in constructing numerical examples the example pertains to neoclassical production and in each case there are three distinct representative agents one for production one for factor demand professor of economics duke university durham nc 27706 financial support from nsf grant ses8318778 and a sloan research fellowship are gratefully acknowledged a more detailed version of this paper is available on request from the author