Showing papers on "Opportunism published in 1985"
Posted Content•
TL;DR: In this paper, the authors argue that economic organization is shaped by transaction cost economizing decisions and that any issue that arises, or can be recast as a matter of contracting, is usefully examined in terms of transaction costs.
Abstract: This study is based on the belief that economic organization is shaped by transaction cost economizing decisions. It sets out the basic principles of transaction cost economics, applies the basic arguments to economic institutions, and develops public policy implications. Any issue that arises, or can be recast as a matter of contracting, is usefully examined in terms of transaction costs. Transaction cost economics maintains that governance of contractual relations is mainly achieved through institutions of private ordering instead of legal centralism. This approach is based on behavioral assumptions of bounded rationalism and opportunism, which reflect actual human nature. These assumptions underlie the problem of economic organization: to create contract and governance structures that economize on bounded rationality while safeguarding transactions against the hazards of opportunism. The book first summarizes the transaction cost economics approach to the study of economic organization. It develops the underlying behavioral assumptions and the types of transactions; alternative approaches to the world of contracts are presented. Assuming that firms are best regarded as a governance structure, a comparative institutional approach to the governance of contractual relations is set out. The evidence, theory, and policy of vertical integration are discussed, on the basis that the decision to integrate is paradigmatic to transaction cost analysis. The incentives and bureaucratic limits of internal organization are presented, including the dilemma of why a large firm can't do everything a collection of small firms can do. The economics of organization in presented in terms of transaction costs, showing that hierarchy also serves efficiency and permits a variety of predictions about the organization of work. Efficient labor organization is explored; on the assumption that an authority relation prevails between workers and managers, what governance structure supports will be made in response to various types of job attributes are discussed, and implications for union organization are developed. Considering antitrust ramifications of transaction cost economics, the book summarizes transaction cost issues that arise in the context of contracting, merger, and strategic behavior, and challenges earlier antitrust preoccupation with monopoly. (TNM)
4,826 citations
TL;DR: The authors argues that the two most influential statements of the paradigm (Williamson's and Ouchi's) rest on different assumptions regarding human motivation and that the differences and their implications need to be carefully spelled out and confronted empirically.
Abstract: The markets and hierarchies paradigm holds out the promise of a general theory of the conditions under which organizations come into existence. This paper argues that the two most influential statements of the paradigm (Williamson's and Ouchi's) rest on different—indeed competing—assumptions regarding human motivation. A viable program of research requires that the differences and their implications be carefully spelled out and confronted empirically.
146 citations
TL;DR: In this paper, the authors formalize the notion of strategic innovation, where capital and labor attempt to redistribute firm income after specialized assets are in place, through unilateral modifications in production technology.
Abstract: The transaction cost analysis of the firm has identified asset idiosyncrasy and the risk of ex post opportunism as key determinants of organizational form Simultaneously, several writers have modeled the distribution of quasi-rents among input suppliers as a bargaining game These complementary ideas are used to formalize the notion of strategic innovation, where capital and labor attempt to redistribute firm income after specialized assets are in place, through unilateral modifications in production technology Because strategic behavior can enlarge the quasi-rent component of fifirm income, this process may persist in equilibrium Asset idiosyncrasy therefore creates room for an autonomous theory of organizational dynamics, partially insulated from events at the market level of analysis
31 citations
01 Jan 1985
TL;DR: The dangers of the growing shadow economy are discussed in this article, where the established rules are obeyed spontaneously in an economy, this increases economic efficiency since the uncertainties, monitoring costs and incentive problems induced by opportunism can be avoided.
Abstract: If the established rules are obeyed spontaneously in an economy, this increases economic efficiency since the uncertainties, monitoring costs and incentive problems induced by opportunism can be avoided. Opportunism will be increased by increasing the incentives for unlawful behaviour, however, and a slight increase in these incentives might cause a cumulative and self-nourishing breakdown of morals. The dangers of the growing shadow economy are louring here.
19 citations
TL;DR: In this article, the authors consider the problem of bilateral opportunism between contracting parties in a fixed-fee and hourly-rate setting, where a customer negotiating a fixed fee contract may have the incentive to understate the complexity of his situation in order to secure a low fee whereas a firm negotiating an hourly rate contract may overstate the time.
Abstract: THE traditional theory of exchange implicitly assumes that the seller receives the contractually determined price at the time the (instantaneous) exchange is made. However, the actual process of exchange is more convoluted. Not only is timing of payment subject to variation (sometimes occurring before supply and sometimes after), but more important, the effective price may be determined ex ante or ex post supply.' Examples of the latter complication arise in many service markets where contracts may be negotiated on a flat fee basis (ex ante pricing) or an hourly rate basis (ex post pricing). For example, in the market for a legal service, such as an uncontested divorce, we simultaneously observe some law firms quoting a fixed fee for the service and others pricing it on an hourly rate basis. In this paper we consider the hypothesis that the selection of contractual provisions for price timing in conjunction with variations in the degree of firm reputation (brand name) may provide a solution to the problem of bilateral opportunism between contracting parties. The particular problem addressed is that a customer negotiating a fixed fee contract may have the incentive to understate the complexity of his situation in order to secure a low fee whereas the firm negotiating an hourly rate contract may have the incentive, once the service is performed, to overstate the time
11 citations