Journal•ISSN: 0022-2186
The Journal of Law and Economics
University of Chicago Press
About: The Journal of Law and Economics is an academic journal published by University of Chicago Press. The journal publishes majorly in the area(s): Competition (economics) & Property rights. It has an ISSN identifier of 0022-2186. Over the lifetime, 1565 publications have been published receiving 179709 citations. The journal is also known as: The Journal of law & economics.
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TL;DR: The authors argue that the separation of decision and risk-bearing functions observed in large corporations is common to other organizations such as large professional partnerships, financial mutuals, and nonprofits. But they do not consider the role of decision agents in these organizations.
Abstract: ABSENT fiat, the form of organization that survives in an activity is the one that delivers the product demanded by customers at the lowest price while covering costs.1 Our goal is to explain the survival of organizations characterized by separation of "ownership" and "control"-a problem that has bothered students of corporations from Adam Smith to Berle and Means and Jensen and Meckling.2 In more precise language, we are concerned with the survival of organizations in which important decision agents do not bear a substantial share of the wealth effects of their decisions. We argue that the separation of decision and risk-bearing functions observed in large corporations is common to other organizations such as large professional partnerships, financial mutuals, and nonprofits. We contend that separation of decision and risk-bearing functions survives in these organizations in part because of the benefits of specialization of
14,045 citations
TL;DR: For instance, the authors argues that if transaction costs are negligible, the organization of economic activity is irrelevant, since any advantages one mode of organization appears to hold over another will simply be eliminated by costless contracting.
Abstract: THE new institutional economics is preoccupied with the origins, incidence, and ramifications of transaction costs. Indeed, if transaction costs are negligible, the organization of economic activity is irrelevant, since any advantages one mode of organization appears to hold over another will simply be eliminated by costless contracting. But despite the growing realization that transaction costs are central to the study of economics,' skeptics remain. Stanley Fischer's complaint is typical: "Transaction costs have a well-deserved bad name as a theoretical device ... [partly] because there is a suspicion that almost anything can be rationalized by invoking suitably specified transaction costs."2 Put differently, there are too many degrees of freedom; the concept wants for definition.
9,217 citations
TL;DR: In this paper, the potential of post-contractural apportunistic behavior for improving market efficiency through intra-firm rather than interfirm transactions is examined under the assumption that vertical costs will increase less than contracting costs as specialized assets and appropriable quasi rents increase.
Abstract: The potential of post-contractural apportunistic behavior for improving market efficiency through intrafirm rather than interfirm transactions is examined under the assumption that vertical costs will increase less than contracting costs as specialized assets and appropriable quasi rents increase. Vertical integration protects against the risk of contract cancellation and can create market power which is not generally referred to as monopoly. Contracts used as a alternative provide economically enforceable protection against opportunistic behavior. Solutions to opportunistic behavior problems can include joint ownership of common assets and condominium ownership of services. Economies of scale are major factors in some businesses, such as insurance. The complexities of ownership relations makes it difficult to assign higher costs to either the contract or vertical-integration approach. This suggests that economic analysis should be used to identify which is most advantageous for specific kinds of activities.
5,728 citations
TL;DR: In this paper, the authors explore the reasons for and determinants of the provision by a firm of false information to a consumer so as to induce purchases which would not be made if the consumer possessed full information about the qualities of his purchase.
Abstract: THIS paper explores the reasons for and determinants of the provision by a firm of false information to a consumer so as to induce purchases which would not be made if the consumer possessed full information about the qualities of his purchase. Market responses to potential for fraud are analyzed in detail. It is shown that fraud and related practices follow from significant costs both in the determination of quality of a particular good or service and in the effective vertical integration of seller and buyer through some exchange of property rights. Much of our discussion focuses on the key problem of the joint provision of diagnosis and services-such as the choice and execution of an automobile repair or taxicab route--but the model developed will be seen to have general applicability whenever the seller provides information which influences purchases, as through advertising or salesmen's promises. In the context of the repair problem, we explore the reasons for and the determinants of the provision of repair services in amounts greater than would be economically efficient, given the price of the services and their marginal product in terms of the service flow from the repaired commodity.' The possibility of this situation is suggested by the observation that in a considerable number of cases involving medical, automotive, and other repair services, contrary to the basic assumption of conventional demand theory, the consumer is unaware of the ability of the repair service to satisfy a given want.2
3,696 citations
TL;DR: Jensen and Fama as mentioned in this paper developed a set of propositions that explaim the special features of the residual claims of different organizational forms as efficient approaches to controlling agency problems and explained the survival of organizational forms in specific activities.
Abstract: Social and economic activities, like religion, entertainment, education, research, and the production of other goods and services, are carried on by different types of organizations, for example, corporations, proprietorships, partnerships, mutuals and nonprofits. There is competition among organizational forms for survival. The form of organization that survives in an activity is the one that delivers the product demanded by customers at the lowest price while covering costs. The characteristics of residual claims are important both in distinguishing organizations from one another and in explaining the survival of organizational forms in specific activities. This paper develops a set of propositions that explaim the special features of the residual claims of different organizational forms as efficient approaches to controlling agency problems. © M. C. Jensen and E. F. Fama, 1983 Michael C. Jensen, Foundations of Organizational Strategy Chapter 6, Harvard University Press, 1998. Journal of Law & Economics, Vol XXVI (June 1983) This document is available on the Social Science Research Network (SSRN) Electronic Library at: http://papers.ssrn.com/sol3/paper.taf?ABSTRACT_ID=94032 AGENCY PROBLEMS AND RESIDUAL CLAIMS
3,594 citations