what drives deregulation economics and politics of the relaxation of bank branching restrictions this paper investigates private interest public interest and political institutional theories of regulatory change to analyze state level deregulation of bank branching restrictions using a hazard model we find that interest group factors related to the relative strength of potential winners large banks and small bank dependent firms and losers small banks and the rival insurance firms can explain the timing of branching deregulation across states during the last quarter century the same factors also explain congressional voting on interstate branching deregulation while we find some support for each theory the private interest approach provides the most compelling overall explanation of our results

assortative matching and reputation in the market for first issues using a tractable structural model of the matching equilibrium between underwriters and equity issuing firms we study the determinants of value in underwriter firm relationships our estimates imp

two sided matching in the loan market this paper investigates the matching between banks and firms in the loan market we estimate a many to one two sided matching model using the fox 2010 matching maximum score estimator using data on the u s loan market from 2000 to 2003 we find evidence of positive assortative matching of sizes moreover we show that banks and firms prefer partners that are geographically closer giving support to the importance of physical proximity for information gathering and expertise sharing we also show that banks and firms prefer partners with whom they had prior loans indicating that prior loan relationship plays an important role in the selection of current partners

heterogeneity and peer effects in mutual fund proxy voting this paper studies voting in corporate director elections we construct a comprehensive data set of 2 058 788 mutual fund votes over a two year period we find systematic heterogeneity in voting some funds are consistently more management friendly than others we also establish the presence of peer effects a fund is more likely to oppose management when other funds are more likely to oppose it all else being equal we estimate a voting model whose supermodular structure allows us to compute social multipliers due to peer effects heterogeneity and peer effects are as important in shaping voting outcomes as firm and director characteristics

monitoring physicians a bargaining model of medical group practice this paper challenges the proposition that large physician owned groups will be inefficient because of failures to control opportunism a bargaining model implies that even large partnerships will make efficient resource and monitoring decisions in addition opportunism has much the same payoff for employees and partners the data show that most large medical practice organizations are physician owned empirical analyses of nine forms of monitoring by large groups generally show no clear link between monitoring and ownership there is one exception physician owned firms tend to base compensation on productivity which may help explain the continued dominance of professional partnerships

a brand name firm theory of medical group practice medical group practices are firms voluntary contracts between two or more practitioners to jointly provide services purchase inputs and distribute income it is hypothesized that one reason why such organizations are formed is to more efficiently convey information on quality of care to patients and further that the increased efficiency of doctor patient exchange is usually more important than economies of scale in production a brand name firm theory of medical group practice is presented and then tested by comparisons between medicine and dentistry generalist and specialist practice and by variations in mobility across patients and providers observed variation in the extent and contractual structure of group practice strongly supports the brand name firm hypothesis and is inconsistent with economies of scale explanations

on some recent explanations of why capital hires labor conventional microeconomics contains no explanation of why capital hires labor and not the reverse in view of some surprisingly positive results in the theoretical analysis of worker run enterprise systems recent contributions to the theory of the firm have attempted to explain the dominance of capitalist production relations in efficiency terms the present paper critically reviews works in this area by alchian and demsetz 1972 williamson 1975 1980 and jensen and meckling 1979 and contends that a convincing efficiency argument for the general superiority of capital owners over workers control of enterprises still is lacking

the function of authority in transaction cost economics abstract this paper questions the transaction cost characterization of observed authority relations as efficient governance structures various inadequacies in the transaction cost account of work organization and the limits of firm size are traced to its neglect of the possibility that authority may be abused opportunistically this exemplifies a more general propensity in the transaction cost literature that of explaining economic organization in functionalist terms with little attention to the causal mechanisms through which efficient governance structures might actually arise three such mechanisms are considered but none is found to provide an adequate rationale for the imputation of efficiency to observed structures

new institutional economics in the post socialist transformation debate the paper suggests that there is a tension between the basic tenant of new institutional economics nie and the manner in which it has been applied in the debate on post socialist transformation this tension is explored in the context of four main perspectives on nie i property rights ii transaction costs economics iii new economic history and iv evolutionary economics there are two main arguments the first is that the transformation phase should be seen as open ended rather than a closed process where the pure market is the inevitable end result the second is that although the nie literature touches on most of the issues which are relevant to post socialist transformation the insights that it offers are still too general for policy guidance

the loan contract mechanism of financial control industry banking the style of banking under which a single bank satisfies all the external financial needs of an industry was recognised by alfred marshall i9i9 as a positive force in the development of new industries today many of marshall s reference industries have reached maturity but their industry banks continue to play an active role not only in financing their production and expansion but also in their management cable i985 prais 198i to understand the economic impact of industry banking this paper explores one aspect of it bank directed industry coordination and control

williamson s the economic institutions of capitalism there can be no doubt this book is a major contribution perhaps the volume is best characterized as a systematic theoretical examination of those portions of society s economic activities that the market mechanism does not automatically run to perfection but here such activities are not simply listed as market failures and forgotten rather they are treated appropriately as normal and widespread economic phenomena whose anatomy urgently requires examination and understanding vertical integration is an archtypical example if the unaided market mechanism did everything perfectly firms would rarely be able to enhance efficiency by integrating vertically it would usually be optimal for intermediate goods to be bought from independent suppliers on the free market i have more than once enjoyed teasing businesspersons bent on defending the vertical integration of their firms by suggesting that they are soviet central planners at heart and that when push comes to shove they have little use for the market mechanism in practice of course the truth generally lies somewhat in between for any given firm there is presumably an optimal degree of vertical integration determined by the requirements of economy in production and economy in the governance process or as williamson puts it of economizing in transactions costs the point is that a variety of institutions and behavior patterns really make sense primarily in terms of their relative efficacy in dealing with transactions costs that renders each in turn best in different circumstances decentralized and hierarchical organization of firms the vast variety of contractual forms franchising tie ins and many others these are the sorts of institutions to which williamson s analysis is devoted it should be said at once that i can find no major point of disagreement with his analysis on the contrary i enthusiastically accept the substance of all his central conclusions this extends also to williamson s characterization of the contestability literature and its relation to his own analysis which i believe he has done completely correctly as will be spelled out presently i have only two substantive reservations about the book the first is a slight tendency by the author to overstatement of claims for the new analysis a manifestation of enthusiasm which is no doubt commendable in a pioneer and in any event i know i am hardly in a

endogenous matching in university industry collaboration theory and empirical evidence from the united kingdom we use a two sided matching framework to analyze collaboration between heterogeneous academics and firms we consider both horizontal and vertical characteristics those related to affinity e g preferences for a type of scientific research and those related to ability e g capacity to produce high quality scientific output we build a unique data set based on the teams of academics and firms that proposed research projects to the uk s engineering and physical sciences research council our results are suggestive of positive assortative matching in terms of ability and type while the matching is negative assortative in terms of their interactions the most able and the most applied academics are the ones that are more likely to propose collaborative as opposed to noncollaborative projects data are available at https doi org 10 1287 mnsc 2016 2680 this paper was accepted by david hsu entrepreneurship and innovation

how do mergers create value a comparison of taxes market power and efficiency improvements as explanations for synergies there is little evidence in the literature on the relative importance of the underlying sources of merger gains prior literature suggests that synergies could arise due to taxes market power or efficiency improvements based on value line forecasts we estimate the average synergy gains in a broad sample of 264 large mergers to be 10 03 of the combined equity value of the merging firms the detailed data in value line projections allow for the decomposition of these gains into underlying operating and financial synergies we estimate that tax savings contribute only 1 64 in additional value while operating synergies account for the remaining 8 38 operating synergies are higher in focused mergers while tax savings constitute a large fraction of the gains in diversifying mergers the operating synergies are generated primarily by cutbacks in investment expenditures rather than by increased operating profits overall the evidence suggests that mergers generate gains by improving resource allocation rather than by reducing tax payments or increasing the market power of the combined firm

capital market information and industrial performance the role of west german banks in orthodox theory external capital markets play a dual role supplying various forms of investment finance and disciplining firms which are inefficient or fail to pursue profit goals an extensive literature speaks of the efficiency of external capital markets meaning that firms can make production investment decisions and investors can choose among the securities that represent ownership of firms activities under the assumption that security prices at any time fully reflect all available information fama i970 1 however this concept of efficiency is purely technical it depends critically on what information is available and we know there are problems of appropriability and failure in information markets deriving ultimately from certain peculiarities of information as a commodity arrow i962 thus another growing literature focusses on problems of achieving equilibrium in markets where agents are imperfectly or asymmetrically informed amongst other things this literature shows that informational failures of the kind in question can lead to capital rationing in loan and credit markets and the use of strict collateral requirements as screening devices jaffee and russell i976 stiglitz and weiss i98i cable and turner i983 these may then be expected to affect the efficiency of individual firms and the system as a whole capital shortage implies that some profitable investment opportunities are foregone and production choices may also be distorted by the need to satisfy additional financial constraints contrived to elicit signals of creditworthiness of the firms undertaking them similarly the disciplining role of external capital markets can be impaired by information impactedness williamson i975 and the costs of mobilising and giving effect to shareholders preferences thus in the principal agent framework developed by jensen and meckling i976 and fama i980 the degree of constraint on managerial pursuit of non profit goals as posited by managerial theorists depends on the transactions costs of stock owner intervention the result is an optimal degree of departure from cost minimising profit maximising behaviour determined by the level of transactions costs institutional factors which affect the way information is distributed amongst agents can therefore have an important bearing on allocative and technical efficiency and the west german system of industrial finance provides an in

an institutional analysis of payments for environmental services abstract in this paper the characteristics and functioning of pes is analyzed from an institutional perspective while in theory pes is seen as a market solution to environmental problems as an alternative to state hierarchical and community governance a review of a large amount of case studies shows that pes in practice depends rather fundamentally on state and or community engagement hence pes are foremost a reconfiguration of the roles of public bodies and communities becoming core intermediaries or buyers first to establish pes rights to the land that delivers the environmental service must be clarified this demands public action second transacting over environmental amenities is very costly creating markets for environmental services depends therefore crucially on state and community facilitation hence buyers are often public agencies high transaction costs also influence price setting payments do not follow the market format as intermediaries frequently are setting the price with users often being unaware even of the fact that they pay finally the distinction between payments as incentives and as fair compensations is emphasized while payments may strengthen community relations and simplify action for environmental care they may also introduce a purely instrumental logic and in some cases worsen the environmental status by crowding out environmental virtues for the future greater awareness of these dynamics is warranted

transaction costs and partnerships the case of rock bands abstract this paper applies transaction cost economics to rock bands it develops the importance of asset specificity a number of phenomena in the field are shown to be explicable in terms of transactions costs

the design of contracts and remedies for breach in the first part of this article hypothetical contracts providing for all possible uncertain contingencies are considered in the next part contracts providing for only some contingencies are examined and are shown to be advantageous due both to difficulties that could arise in making and enforcing contingent terms and to the presence of implicit substitutes for them in the following major part of the article two of these substitutes for contingent terms are analyzed remedies for breach and the opportunity for renegotiation the existence of both is demonstrated to induce parties to behave approximately as they would under detailed contracts

credit markets and the control of capital traditional discussions of the role of capital markets have identified a number of distinct functions which they perforrn they allocate scarce capital among competing users and uses l and they provide signals to guide managers in making their investment decisions 2 in this lecture i wish to focus on a rather different function of the capital market what i shall refer to as the control of capital 3 conventional theory treats the typical firrn in an anthropomorphic manner it acts as a single rational individual doing what it is supposed to be doing maximizing stock market value that may have been well and good in those nostalgic bygone days of small firrns each run tightly by their owners who were single mindedly pursuing their lust for wealth but today a majority of production occurs in large corporations in which no shareholder owns more than a small fraction of the shares in which the separation of ownership and control that frank knight was so concerned with in his writings some sixty five years ago has become a reality those

bank capital and lending relationships this paper investigates the mechanisms behind the matching of banks and firms in the loan market and the implications of this matching for lending relationships bank capital and the provision of credit i find that bank dependent firms borrow from well capitalized banks while firms with access to the bond market borrow from banks with less capital this matching of bank dependent firms with stable banks smooths cyclicality in aggregate credit provision and mitigates the effects of bank shocks on the real economy

markets false hierarchies and the evolution of the modern corporation transaction cost economics or the markets and hierarchies framework has emerged in recent years as an important new approach for dealing with a variety of problems in industrial organisation although coase 1937 provided an early statement of the role of costs of using the market in encouraging firm organisation to replace market exchange in certain circumstances the development of transaction cost economics as a coherent and systematic industrial organisation framework did not take place until the 1970s the rediscovery development and refinement of transaction costs as a possible analytical tool is due in large part to oliver williamson whose outline of the framework is contained in three works the initial statement markets and hierarchies 1975 henceforth mh henceforth eic has further extended the boundaries of transaction cost economics remaining broadly consistent with mh henceforth eo is a selected set of essays some in transaction cost economics and some from an earlier period in williamson s work for our purposes eic may be taken as a definitive and current statement of williamson s approach to economics though both of the other works extend the analysis in significant respects

a resource based theory of the firm knowledge versus opportunism this paper develops a resource based knowledge based theory of the firm its thesis is that the organizational mode through which individuals cooperate affects the knowledge they apply to business activity we focus on the polar cases of organization within a firm as compared to market contracting there will be a difference in the knowledge that is brought to bear and hence in joint productivity under the two options thus as compared to opportunism based transaction cost theory we advance a separate yet complementary answer to the question why do firms exist our aim is to develop an empirically relevant and complementary theory of why firms are formed a theory based on irreducible knowledge differences between individuals rather than the threat of purposeful cheating or withholding of information we assume limited cognitive abilities on the part of individuals bounded rationality and assume that opportunistic behavior will not occur the latter allows us to determine whether resource based

anticipated vs actual synergy in merger partner selection and post merger innovation past research has primarily focused on what happens after a merger this research attempts to determine whether anticipated benefits from the merger actually accrue we characterize the effects of observed variables on whether pairs of firms merge vis a vis roommate matching and then link these factors to post merger innovation i e number of patents we jointly estimate the two models using markov chain monte carlo methods with a unique panel data set of 1 979 mergers between 4 444 firms across industries and countries from 1992 to 2008 we find that similarity in national culture and technical knowledge has a positive effect on partner selection and post merger innovation anticipated synergy from subindustry similarity however is not realized in post merger innovation furthermore some key synergy sources are unanticipated when selecting a merger partner for example financial synergy from higher total assets and complementarity in total assets and debt leverage as well as knowledge synergy fr

an investigation of oliver williamson s analysis of the division of labour in 2009 oliver williamson was jointly awarded the nobel prize in economics for his analysis of economic governance williamson was central to the emergence of the transaction cost framework as an important aspect of social scientific analysis part of this approach makes important efficiency predictions and prescriptions regarding the division of labour within firms in contemporary capitalist economies this discounts issues of power and privileges firm specific human assets as the key organisational driver indeed williamson s approach intentionally conflates the employment relation with exchanges for intermediate goods this article seeks to investigate williamson s explanatory claims through a uk based panel dataset using a dynamic logit modelling approach the findings question williamson s central argument the results instead are more consistent with the idea of the industry specificity of labour and highlight the importance of firm size

do tender offers create value new methods and evidence abstract conventional techniques of estimating takeover value improvements measure only a fraction of the total gain and include revelation about bidder stand alone value to address these biases we develop the probability scaling method which rescales announcement date returns and the intervention method which uses returns at intervening events perceived value improvements are larger than traditional methods indicate we cannot reject the hypothesis that bidders on average pay fair prices combined bidder target stock returns are higher for hostile offers lower for equity offers and lower for diversifying offers these effects reflect revelation about bidder stand alone value not differences in gains from combination

inconsistent regulators evidence from banking we find that regulators can implement identical rules inconsistently due to differences in their institutional design and incentives and this behavior may adversely impact the effectiveness with which regulation is implemented we study supervisory decisions of u s banking regulators and exploit a legally determined rotation policy that assigns federal and state supervisors to the same bank at exogenously set time intervals comparing federal and state regulator supervisory ratings within the same bank we find that federal regulators are systematically tougher downgrading supervisory ratings almost twice as frequently as do state supervisors state regulators counteract these downgrades to some degree by upgrading more frequently under federal regulators banks report worse asset quality higher regulatory capital ratios and lower return on assets leniency of state regulators relative to their federal counterparts is related to costly outcomes such as higher failure rates and lower repayment rates of government assistance funds the discrepancy in regulator behavior is related to different weights given by regulators to local economic conditions and to some extent differences in regulatory resources we find no support for regulator self interest which includes revolving doors

specifying a structural matching game of trading networks with transferable utility structural estimation of matching games with transferable utility including matching games of trading networks and many to many matching is increasingly popular in empirical work i explore several modeling decisions that need to be made when specifying a structural model for a matching game one decision is the choice of a game theoretic solution concept to impose in the structural model i discuss pairwise stability competitive equilibrium and noncooperative games such as auctions another decision is whether to work with a continuum of agents or a finite number of agents i explore other issues as well

optimal incentive contracts with multiple agents abstract a setting in which a single principal contracts with two agents who possess perfect private information about their own productivity is considered with correlated productivities each agent s private information also provides a signal about the other agent s productivity in contrast to the setting in which there is only one agent it is shown that such private information may be of no value to the agents it is only if the agents are risk averse that their private information may allow them to command rents moreover when the agents are constrained only to reveal their private information truthfully as a nash equilibrium the pareto optimal incentive scheme may induce the agents to adopt strategies other than truth telling this leads to the consideration of truth telling equilibria that are not pareto dominated in the subgame played by the agents among all such equilibria the one preferred by the principal restricts one agent to tell the truth as a dominant strategy and the other as a nash response to truth

efficiency in partnership structures abstract consider an economy where agents differ in production skills and abilities and are free to form production coalitions or partnerships with each other farrell and scotchmer 1988 showed that if partners are restricted to equal output sharing in equilibrium the partnerships are inefficiently small we elaborate on another possible source of inefficiency which is due to composition rather than size under the equal sharing constraint high ability agents form partnerships with agents of similar ability levels yet mixing of ability levels may be socially efficient we further investigate whether relaxing the equal sharing constraint corrects the inefficiency of equilibrium

transaction costs markets and hierarchies 1 transaction costs markets and hierarchies christos pitelis university of cambridge 2 the nature and role of markets malcolm sawyer university of leeds 3 in the beginning there were markets frederick fourie university of the dfs south africa 4 control markets and firms keith cowling and robert sugden university of birmingham 5 transaction costs and the evolution of the firm geoffrey hodgson newcastle polytechnic 6 the appropriability critique of transaction cost economics gregory dow university of alberta canada 7 power and efficiency in the firm paul marginson university of warwick 8 transaction costs and revenues michael dietrich newcastle polytechnic 9 transaction cost economics and the state william dugger depaul university chicago 10 markets hierarchies and markets again steve thompson and mike wright university of manchester and university of nottingham 11 markets false hierarchies and the role of asset specificity neil kay university of strathclyde 12 on transactions costs and markets and as hierarchies christos pitelis university of cambridge

technology and oliver williamson s transaction cost economics abstract oliver williamson has greatly contributed to refining neoclassical economics by incorporating transaction costs and internal organization yet his new institutional economics too easily dismisses the role of technology in doing so he has replaced the determinism of technological production efficiencies with the determinism of transaction cost efficiencies a review shows that williamson s new institutionalism has evolved through three stages in terms of the focus of his analysis and his views of transactions throughout this evolution however his proposed solutions to organizational failures have actually continued to rely heavily upon technology

the role of political parties an analysis based on transaction costs this paper explores the proposition that political parties reduce the transaction costs of electoral participation political parties provide a low cost signal of a candidate s policies and personal characteristics and in this way reduce voters information costs with reference to transaction cost economics political parties offer an implicit contract between voters and politicians and thereby reduce the scope for opportunism by politicians this impact on transaction costs is important in any evaluation of public policy towards political parties

the determinants of bank mergers a revealed preference analysis we provide new estimates of merger value creation by exploiting revealed preferences of merging banks within a matching market framework we find that merger value arises from cost efficiencies in overlapping markets relaxing of regulation and network effects exhibited by the acquirer target matching beyond our findings the revealed preference method has notable advantages that warrant its application beyond the bank merger market notably we show that the method outperforms reduced form alternatives out of sample enables sensible counterfactual experiments and can be used to evaluate private to private mergers which have been understudied because of lack of stock market data data as supplemental material are available at http dx doi org 10 1287 mnsc 2015 2245 this paper was accepted by amit seru finance

moral hazard and risk spreading in partnerships partnerships provide a classic example of the tradeoff between risk spreading and moral hazard the degree to which firms choose to spread risk and sacrifice efficiency incentives depends upon risk preferences for which data are typically unavailable we use a unique dataset on medical group practice to investigate this tradeoff risk aversion leads to compensation arrangements which spread risk through greater sharing of revenues we find that compensation arrangements with greater degrees of revenue sharing significantly reduce physician effort the results imply that changing the method of physician payment from fee for service to capitation will dramatically reduce physician effort