Showing papers on "Opportunism published in 1992"

The firm as a nexus of treaties

Abstract: 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.

Federalism and the Corporation: The Desirable Limits on State Competition in Corporate Law

Abstract: Corporate law scholars have long debated whether state competition for corporate charters is a "race for the bottom" or a "race for the top." This paper offers an analysis of the dynamics and performance of state charter competition. I show how the presence of managerial opportunism and externalities may lead states to adopt undesirable corporate law rules. The analysis identifies the various issues with respect to which state competition is likely to fail, and he advocates an expansion of federal regulation to govern all of these issues. I also connect the state competition question with the question of contractual freedom in corporate law and argue that many scholars should reconsider their inconsistent views regarding these two questions. Finally, I conclude by addressing potential objections to the expansion of federal corporate regulation.

An economic analysis of interorganizational information technology

Abstract: This paper first reviews some basic results on the economics of information technology (IT) and strategy. These results begin by developing a model of interorganizational IT, focusing on supplier-buyer interactions and the costs and benefits of IT in facilitating such interactions. The modeling framework incorporates economies of scale and scope, transactions specific sunk costs of IT development, and related issues of bargaining and opportunism. Results of the model are applied to the increasingly important topic of interorganizational information systems, addressing some of the risks of cooperative ventures that are frequently overlooked in the MIS literature.

The Effect of Cultural Differences in Perceptions of Transaction Costs on National Differences in the Preference for Licensing

Abstract: The transaction cost framework explains the preference for licensing over direct foreign investment at the firm level (Hennart, 1990). However, as it presently stands, the theory does not explain national differences in the preference for licensing. Since many authors have shown that some countries engage in more direct foreign investment than do others (Caves, 1982; Robinson, 1961; Brooke and Remmers, 1992; Franko, 1976; Stopford and Habervich, 1978; Kogut and Singh, 1988; Hennart, 1982; Gatignon and Anderson, 1988), such an extension is warranted. The purpose of this paper is to make this extension by showing that cultural differences in trust make some countries more likely than others to favor licensing over direct foreign investment. This paper argues that cultural differences in perceptions of transaction costs are influenced by the degree of trust in a society as measured by Hofstede's (1980) power distance index. A low score on the power distance index increases a nation's preference for licensing over direct foreign investment. This study tests this argument with industry level data from the United States Commerce Department's Benchmark Survey (1985) of operations of US-based multinational corporations in 1977 and 1982. Literature Review When entering markets, firms choose between direct foreign investment and licensing (Caves, 1982). However, these alternatives are not equal. When markets fail, firms can earn higher economic rents for proprietary assets by engaging in direct foreign investment rather than by licensing (Caves, 1982). One might ask if market failure is more likely in some countries than in others because perceptions of transaction costs in them are higher. The argument that cultural differences influence perceptions of transaction costs stems from the work of Williamson (1975, 1985), Ouchi (1980) and Maitland et al. (1985). It goes as follows: People must obtain cooperation to achieve many organizational aims, but differences in people's goals makes this cooperation difficult to establish and maintain (Maitland et al., 1985). Two basic approaches are used: the establishment of contracts, and the creation of hierarchies. People's opportunism helps to explain which mechanism is chosen. According to Williamson (1975, 1985), individuals will not keep promises, will violate agreements, and will present incomplete or distorted information to confuse others. To control this opportunism, contracts which specify roles and responsibilities are written. However, when contracts cannot be written to cover all circumstances, organizations are formed (Maitland et al., 1985; Williamson, 1975). Under internal organization, potential disputes are resolved by hierarchy rather than by bargaining (Williamson, 1975). If complete trust existed between people, however, no hierarchies would be needed. For example, Hennart (1988) has explained that if raw materials suppliers and customers were willing to uphold agreements under all circumstances, vertical integration would not be necessary. Backward integration occurs when the customer fears that the seller will act opportunistically to change an agreement once a transaction specific investment has been made (Hennart, 1988). However, vertical integration would be unnecessary if the party making the transaction specific investment could trust the other party to adhere to the spirit of the agreement and not act opportunistically (Williamson, 1985). Similarly, if people trusted each other to offer high quality output, internalization to ensure high quality would be unnecessary. Hennart (1988) explains that firms are reluctant to franchise because a franchisee can use a trademark while failing to maintain quality standards. To prevent this problem, the firm turns the franchisee into an employee in a wholly owned subsidiary (Hennart, 1990). However, if trust between the franchisor and the franchisee exists, such control is unnecessary. …

School-Based Decision Making: A Principal-Agent Perspective

Abstract: A principal-agent framework is used to examine the potential gains to educational performance and the potential threats to public accountability that school-based decision-making proposals pose. Options for minimizing problems arising from divergent objectives and information asymmetry, such as incentive-based contracts, limited school discretion, and school councils, are examined. The analysis underscores the need to tailor the design of decentralized decision making to the sources of poor educational performance and potential threats to school opportunism.

What Kind of Commodity Is News

Abstract: U.S. news organizations, both print and broadcast, are moving from practices in which “professional” journalists define what is newsworthy toward letting the market decide. The trend has generated much debate, but little from a theoretical perspective. This article seeks to provide some conceptual tools for thinking about how news will fare as a market-driven product. The analysis concludes that those who argue that market forces will improve journalism have not carefully examined the nature of news with market theory—microeconomics. In fact, microeconomic theory suggests that commodities like news are likely to engender opportunism on the part of news organizations.

Toward a Distinctive Canadian Corporate Law Regime

Abstract: In this article, the authors consider the impact of the institutional and market environment in which Canadian business operates on the structure of corporate and securities law. The authors argue that the linkages between markets and law have been neglected by scholars, judges, and regulators concerned with Canadian corporate and securities law, resulting in the adoption of approaches that are ill-suited to the Canadian environment. Canadian capital markets, for instance, are characterized by high levels of share ownership concentration, thin trading problems, intensive inter-corporate linkages, and possibly lower levels of efficiency. In sum, these factors make the problems occasioned by separated ownership and control (the Berle and Means corporation) much less acute in Canada than the problems of majority shareholder opportunism. These factors also suggest that regulatory initiatives should be structured in a way that distinguishes between the problems of large, intensively traded companies and smaller, thinly traded companies populated by retail investors. The authors consider these issues in the context of three case studies: the private agreement exception, poison pills, and a self-interested transaction.

The Negligence-Opportunism Tradeoff in Contract Law

Abstract: ion than \"construction contracts.\" 292. I would make the same response to Farnsworth's recent disparagement of contract theory: \"The urge to have a 'theory' of contract law has tended to increase the distance between contracts scholarship and practice. In particular, it has led to an excessive emphasis by scholars on why promises are enforced.\" E. Allan Farnsworth, A Fable and a Quiz on Contracts, 37 J. LEGAL EDUC. 206, 208 (1987). I certainly agree that contract theories should not be focusing on why promises are enforced. But the fact that they do is a fault of the theories, not of theorizing. 293. See GILMORE, supra note 279, at 7-8 (describing the \"general law of contract\" as a \"theoretical construct which, having little or nothing to do with the real world, would not-or could not-change as the real world changed\"). 19921 75 Cohen: The Negligence-Opportunism Tradeoff in Contract Law Published by Scholarly Commons at Hofstra Law, 1992 1016 HOFS TRA LAW REVIEW [Vol. 20:941 guidance, many more people-with far less insight than Gilmore-will commit far worse errors. Law and Economics, when practiced well, offers useful guidelines while explicitly recognizing the empirical assumptions and theoretical basis of these guidelines. This paper has tried to improve the Law and Economics approach to contracts by recasting the two analytic traditions of the economic analysis of contract in terms of deterring negligent and opportunistic behavior: by combining the traditions into a more general, fault-based theory; by recognizing the necessity for resolving the negligence-opportunism tradeoff; and by advocating that greater priority should be given to using contract doctrine to deter opportunistic contracting behavior. My hope is that the economic approach to contract law will be improved as a result, and that lawyers, judges, and scholars may find the expanded theory to be a useful guideline for analyzing the cases they are dealt. 76 Hofstra Law Review, Vol. 20, Iss. 4 [1992], Art. 4 http://scholarlycommons.law.hofstra.edu/hlr/vol20/iss4/4

Transactions, transaction costs, and vertical integration: a re-examination

Abstract: The economic analysis of the transaction has its roots in the work of John R. Commons, and has recently been brought to the fore in the work of the ‘new institutionalists’, and especially in the work of Oliver E. Williamson. This article, drawing in part on the analysis of Commons, raises some important questions about Williamson's analysis of the role of transaction costs, and in doing so, attempts to further improve the relation of the theory of the transaction to the modern economy. The implications of the differences in these two theories of the transaction are brought to the fore in an analysis of Williamson's theory of vertical integration. According to Williamson, vertical integration is the outcome of the firm's transaction–cost minimizing response to forces such as opportunism, bounded rationality, and information impactedness. As this paper demonstrates, however, when one considers the transaction theory of Commons, as well as other factors, the scope of Williamson's analysis is seen to be exces...

Filling the Gaps in the Close Corporation Contract: A Transaction Cost Analysis

Abstract: This Article develops a more refined transaction-cost based theory which explains: why rational investors in jointly owned, closely held firms initially choose corporate form; why they leave the contractual gaps that they do; and how efficiency-minded judges should respond to postharmony disputes made possible by the form chosen and the gaps left. My theory takes into account not only the possibility that investors should have chosen partnership law, but also the advantages and disadvantages of organizing production as an implicit team, via long-term contracts between separate businesses or as a sole proprietorship. In explicating this theory of form choice, the Article initially assumes that investors are fully rational. Later, I relax that assumption and consider how courts should respond to situations in which rational investors would not have selected corporate form. Central to my theory is an understanding of the dichotomy between opportunism and adaptability. This Article shows that rational individuals choose to operate as a firm in response to a governance problem endemic to team production supported by team-specific investment – the need to maximize individual and collective ability to adapt to changed circumstances, and at the same time, to minimize the ability of team members to obtain more than their fair share of team-specific value through opportunistic use of available adaptive mechanisms. Rational individuals, then, choose a governance structure for their firm that provides the optimal mix of adaptability and protection from opportunism. Individual adaptability is maximized by rules allowing each owner to withdraw her capital at will. Collective adaptability is maximized by a governance structure that determines all adaptations, including the individual's right to withdraw capital, by majority rule. As individual adaptability is enhanced, so is the risk of minority opportunism. Conversely, as majority adaptability is increased, so is the risk of majority opportunism. Drawing on the dichotomy between opportunism and adaptability, the Article explains in detail: (1) when joint ownership is more desirable than a sole proprietorship; (2) why partnership form is optimal for jointly owned, closely held firms where fear of majority opportunism imposes greater ex ante costs than fear of minority opportunism; and (3) why corporate form is optimal when fear of minority opportunism predominates. The Article builds on this theory of rational form selection to explain the gap-filling role of efficiency-minded courts. In so doing, I hope to shed light on the so-called contract analogy and the “would have wanted” gap-filling theory. I argue that an efficiency-minded court's goal should be to assist investors in achieving an optimal ex ante balance between adaptability and opportunism. However, in pursuing this goal, the court must avoid a gap-filling approach that undermines the value-maximizing reasons that prompted shareholders to choose corporate form. Thus, the court must fashion a gap-filling rule that recognizes the relative concern for minority and majority opportunism indicated by both the form chosen and by the team members' investment characteristics.

Entrepreneurial Capabilities and Resources: Sustainable Competitive Advantage through Innovation and Opportunism

Abstract: Firm resource theory specifies the conditions under which resources and capabilities may lead to sustainable competitive advantage. Using the emerging organization as an example, we use firm resource theory to ident i fy some of the resources important to the entrepreneurial capabilities of innovation and opportunism.

Macroeconomics as Viewed Through the Looking Glass of the New Institutional Economics

Abstract: The New Institutional Economics (NIE) deals primarily with contracts. Yet opposite to neoclassical economics, in which the concept of “perfect” contracts prevails (everything is fixed ex ante for all contingencies and the entire duration of the contract), the NIE focusses on relational or “incomplete” contracts (which are open—ended because it is impossible to agree ex ante on all future eventualities, see Williamson [1985]). The outcome of such contracts may be improved by specific investments. Yet, if the investment cost are “sunk”, there is a lock-in effect which may invite opportunistic (“bad”) behavior of parties. Court orderings are not sufficient to prevent opportunism. They need to be supplemented by “private orderings” (Williamson [1985], 48), e.g., building up a reputation. Reputation works only if the action of, e.g., the authority is observable by third parties and conforms to some pattern. Kreps [1990] identifies this pattern in his theory of the firm with the concept of corporate culture, or more generally: organizational culture.