The division of labor by itself doesn’t say anything about the boundaries of the firm. The division of labor by itself doesn’t say anything about the boundaries of the firm



Yüklə 1,37 Mb.
tarix15.08.2018
ölçüsü1,37 Mb.
#62879



The division of labor by itself doesn’t say anything about the boundaries of the firm.

  • The division of labor by itself doesn’t say anything about the boundaries of the firm.

  • Are the stages of production each a separate firm, or are some stages within a single firm?

  • Vertical integration.



The neoclassical theory of the firm doesn’t help much.

  • The neoclassical theory of the firm doesn’t help much.

  • The firm as a black box.

  • Boundaries of the firm assumed.



The Market.

  • The Market.

    • The exchange of products or outputs.
    • Exchange is coordinated spontaneously, in the sense that relative prices rather than fiat direct resources.
  • The firm.

    • Replaces contracts for products with employment contracts, effectively substituting a factor market for a product market (Cheung 1983).
    • Replaces spontaneous coordination with some kind of central design or direction.


“The main reason why it is profitable to establish a firm would seem to be that there is a cost of using the price mechanism.”

  • “The main reason why it is profitable to establish a firm would seem to be that there is a cost of using the price mechanism.”



The size of the firm not its output (Q) but the number of transactions or activities within its boundaries.

  • The size of the firm not its output (Q) but the number of transactions or activities within its boundaries.



Why doesn’t the firm expand forever?

  • Why doesn’t the firm expand forever?

  • V. I. Lenin: “The whole of society will have become one office and one factory.”

  • But: diminishing returns to internal coordination.

    • Management as a fixed factor.








The “costs of using the price system” came to be called transaction costs.

  • The “costs of using the price system” came to be called transaction costs.





Neoclassical tradition.

  • Neoclassical tradition.

    • The costs resulting from the transfer of property rights. (Allen 2000, p. 901.)
    • Dahlman: identical to transportation costs.
    • The iceberg model.


Property rights tradition.

  • Property rights tradition.

    • The costs of establishing and maintaining property rights. (Allen 2000, p. 898.)
    • Direct costs as well as indirect costs of misallocation from rent-seeking activity.
    • The “Coase theorem.”




Coase seems more interested in costs of exchange.

  • Coase seems more interested in costs of exchange.

    • Cost of discovering the relevant prices.
      • Not completely eliminated by intermediaries.
    • Costs of negotiating and concluding a separate contract for each exchange.
      • Employment contract vs. spot contract.
    • Costs of coordinating when tasks are uncertain.


Why not pay for office services by the piece?

  • Why not pay for office services by the piece?

  • Manager unlikely to know in advance which services needed.

  • Manager pays for the secretary’s time, and decides tasks later.

    • Contract for “job description.”
    • Manager chooses x  .


But is a firm something different from a market?

  • But is a firm something different from a market?

  • “Telling an employee to type this letter rather than to file that document is like my telling a grocer to sell me this brand of tuna rather than that brand of bread.” (Alchian and Demsetz 1972, p. 777.)

  • The firm as a nexus of contracts.



Williamson is more interested in contract than exchange.

  • Williamson is more interested in contract than exchange.

  • Three “critical dimensions” of transactions:

    • Uncertainty;
    • Frequency;
    • Asset specificity.
  • “The most critical dimension for describing transactions is asset specificity.”

  • Agency, monitoring, incentive alignment.



Alchian and Woodward: two sources of “opportunism.”

  • Alchian and Woodward: two sources of “opportunism.”

    • Moral hazard and plasticity.
      • Measurement and monitoring costs.
    • Asset specificity and holdup.
      • Governance costs.


Cheung: the emergence of the firm involves “the replacement of a product market by a factor market, resulting in a saving in transaction costs.”

  • Cheung: the emergence of the firm involves “the replacement of a product market by a factor market, resulting in a saving in transaction costs.”

  • Measurement cost as another “cost of discovering prices.”





Moral hazard: the incentive to cheat in the absence of penalties for cheating.

  • Moral hazard: the incentive to cheat in the absence of penalties for cheating.

    • Origins in insurance.
  • Another kind of “plasticity” of behavior after contract is signed.

  • If monitoring is costly, agents have incentive to supply less effort than they agreed to.

  • Alchian and Demsetz: costly monitoring explains the organization of the firm.



Marginal products of team members not separately measurable.

  • Marginal products of team members not separately measurable.

    • Members paid on the basis of the whole team’s output.
  • Incentive to shirk.

    • Each member receives all the benefits of shirking (leisure) but can spread the costs of shirking to other members.
  • Inefficiency.

    • Since everyone has the same incentives, all shirk, and the team ends up in a low-output equilibrium no one wants.


Solution.

  • Solution.

    • One team member becomes the “boss” and specializes in monitoring the others.
  • But who guards the guardian?

    • “Boss” also becomes the owner — the residual claimant — and is monitored by the market.


Cheung: “My own favorite example is riverboat pulling in China before the communist regime, when a large group of workers marched along the shore towing a good-sized wooden boat. The unique interest of this example is that the collaborators actually agreed to the hiring of a monitor to whip them.”

  • Cheung: “My own favorite example is riverboat pulling in China before the communist regime, when a large group of workers marched along the shore towing a good-sized wooden boat. The unique interest of this example is that the collaborators actually agreed to the hiring of a monitor to whip them.”



Tasks have multiple dimensions.

  • Tasks have multiple dimensions.

    • Some dimensions more costly to measure than others.
  • Performance-based compensation leads agents to maximize the proxy.

    • Rewarding teachers for test scores.
  • May be better to pay fixed wages even when objective output measures available.





The “fundamental transformation.”

  • The “fundamental transformation.”

    • Incentives change once the contract is signed.
  • One party may have an incentive to “hold up” the other.

    • Transfer some of the quasirents of cooperation.


One party owns a generic asset.

  • One party owns a generic asset.

    • High value outside of the transaction (next best use).
  • The other party owns a highly specific asset.

    • Low value outside the transaction.
    • Next best use is as a boat anchor.
  • Assume also that parties cannot recontract until “next season.”



Cooperation nets $50,000.

  • Cooperation nets $50,000.

    • Agree to split 50/50.
  • Once the contract is signed, the party with the generic asset threatens to pull out of the contract.

    • Demands $49,000 of the quasirents of cooperation.
    • “Post contractual opportunism.”


Foreseeing such “contractual hazards,” parties will be reluctant to cooperate.

  • Foreseeing such “contractual hazards,” parties will be reluctant to cooperate.

    • Or will choose less specialized but therefore less efficient technology.
  • Vertical integration solves the hold-up problem.

    • The two parties jointly own both assets.
    • Incentives now properly aligned.


Choice between markets and internal organization.

  • Choice between markets and internal organization.

    • Markets promote high-powered incentives.
    • Markets can aggregate demands and realize economies of scale.
    • But internal organization can sometimes solve problems of opportunism.






























Knight: uncertainty requires use of “judgment” by entrepreneur.

  • Knight: uncertainty requires use of “judgment” by entrepreneur.

    • Judgment noncontractible.
  • Coase: uncertainty raises costs of output contracts and makes use of “authority” more economical.





Incomplete contracts.

  • Incomplete contracts.

    • Costly or impossible to specify all future contingencies in a contract.
  • When unanticipated contingencies occur, how are conflicts resolved?

  • Party with the residual rights of control has authority to decide outcome.

    • “Specific” rights can be contracted away.
    • Residual control rights non-contractible.


Possession of the residual rights of control constitutes “ownership.”

  • Possession of the residual rights of control constitutes “ownership.”

    • Even when specific rights contracted away.
  • Bright-line definition of the boundaries of the firm.

    • Firm as all owned non-human assets.
      • Machines, client lists, patents, etc.
      • Human assets can’t be “owned.”
    • Contrast with nexus-of-contracts view.


Core of the theory:

  • Core of the theory:

    • Misallocation of residual rights causes distortions.
    • Explaining the boundaries of the firm a matter of finding the efficient allocation of residual rights.


Why does misallocation cause distortions?

  • Why does misallocation cause distortions?

    • If you own assets, you have greater threat potential.
      • Contrast with asset-specificity approach: inalienable vs. alienable control rights.
    • Highly complementary assets should be owned in common.
    • Employers are “boss” because they control the physical assets workers need to be productive.


Demsetz: can residual control rights ever be rented?

  • Demsetz: can residual control rights ever be rented?

    • They can be divided (e. g., coops).
  • Foss & Foss: selective and asymmetric costs of enforcement.

    • Future contingencies costly to regulate by contract, but no “plasticity” in the present.
    • Contracts of human assets costly to enforce but not contracts over non-human assets.
  • Pagano: “holes of incomplete contracts are open in a desert of perfectly working and costless markets.”



Owners are those persons who share two formal rights: the right to control the firm and the right to appropriate the firm’s residual earnings.

  • Owners are those persons who share two formal rights: the right to control the firm and the right to appropriate the firm’s residual earnings.

    • Formal not de facto rights.
    • It is often efficient to assign the formal right of control to persons who are not in a position to exercise that right very effectively.
      • Because giving those rights to others would create worse incentives.
      • For example: why managers don’t have formal ownership rights.


Ownership falls to a class of patrons.

  • Ownership falls to a class of patrons.

    • Capital suppliers.
    • Customers.
    • Input suppliers.
    • Workers.
    • Government.
    • No one (but non-profits have donors).
  • All ownership structures are really coops.



Which patrons should own the firm?

  • Which patrons should own the firm?

  • Balance the costs of contracting (with non-owning patrons) and the costs of ownership (for owning patrons).



Monopoly or monopsony.

  • Monopoly or monopsony.

    • Example: bottleneck stage.
  • Contractual lock-in.

    • Relation-specific assets.
  • Asymmetric information.

    • One party has specialized knowledge that is costly to transmit to others.


Monitoring (agency) costs.

  • Monitoring (agency) costs.

    • All else equal, patrons who are least-cost monitors are most efficient owners.
  • Collective decision-making.

    • How to aggregate the interests of members of a patron class?
  • Risk bearing.

    • Which class in the best position to bear risk?


A “capitalists cooperative.”

  • A “capitalists cooperative.”

  • Because of asymmetric information, all other patrons have higher agency costs.

  • Risk diversification benefits of investor ownership.

  • Common denominator of profit reduces costs of decision-making.



Retail coops rare.

  • Retail coops rare.

    • Customers not homogeneous.
    • Campus bookstores and monopoly.
  • Most customer cooperatives are at the wholesale level.

    • Ace, True Value, IGA, Associated Press, Sunbeam Bread.
    • Monopoly supply stage.
  • Coops and franchises.

  • Financial and insurance mutuals.



Analogous to customer coops.

  • Analogous to customer coops.

  • Monopsony processing stage.

  • Common in agriculture.

    • Ocean Spray, Land o’ Lakes, Cabot, Sunkist, much of French wine.
    • The electric power grid?
  • Problems of collective decision-making and flexibility?



Proletarian coops rare.

  • Proletarian coops rare.

    • Unskilled workers easier to monitor than other patrons.
  • Most worker-owned firms in professional services.

    • Law, medicine, consulting.
    • Professionals can monitor one another more cheaply than can outsiders.
    • Little physical capital per worker.
  • Are professional firms consumer coops?

    • Independent firms sharing common assets.


Some kinds of transactions pose special agency problems.

  • Some kinds of transactions pose special agency problems.

    • Payments to third parties to provide goods and services (United Way)
    • Support of public goods (PBS).
  • Customers (donors) are the natural residual claimants.

  • But monitoring by donors costly.

  • Ownership by other patrons creates incentives to appropriate donor resources.



So managers “hold the firm in trust” for the donors.

  • So managers “hold the firm in trust” for the donors.

  • No residual claims – but that needn’t mean no profit.

    • Reliance on formal rules and bureaucracy.
      • Because market control mechanisms absent.
    • Boards of directors chosen for impartiality not expertise.
      • Important donors sit on board.
  • Are non-profits really donors coops?



The rights assignment problem:

  • The rights assignment problem:

    • determining who should exercise a decision right.
  • The control or agency problem:

    • ensuring that self-interested decision agents exercise their rights in a way that contributes to the organizational objective.


Move the knowledge to those with the decision rights.

  • Move the knowledge to those with the decision rights.

  • Move the decision rights to those with the knowledge.



“Knowledge of the particular circumstances of time and place.”

  • “Knowledge of the particular circumstances of time and place.”

    • Tacit versus explicit knowledge.
  • Cost of moving knowledge to decision-makers suggests giving rights to them.

  • Minkler: monitoring agents who know more (in a qualitative sense) than the principal.



The existence of firms implies that there are offsetting benefits of not delegating rights.

  • The existence of firms implies that there are offsetting benefits of not delegating rights.

    • Transaction costs of decentralization.
  • Minkler: as tasks become more knowledge intensive, it pays to delegate greater authority to workers.

    • But why not vertical disintegration rather than worker participation?




Professional skills complex.

  • Professional skills complex.

    • Knowledge and judgment.
  • Professions as production organizations.

  • Shared routines (including common “toolkits”) permit decentralization.



Information-sharing and reciprocity.

  • Information-sharing and reciprocity.

    • Cooperation.
    • Competition.
    • Innovation
  • Authority and autonomy.

    • As the analogue to ownership in a network organization.
  • Reputation and self-monitoring.



Kataloq: ciom

Yüklə 1,37 Mb.

Dostları ilə paylaş:




Verilənlər bazası müəlliflik hüququ ilə müdafiə olunur ©genderi.org 2022
rəhbərliyinə müraciət

    Ana səhifə