Firms, Organizations and Contracts: A Reader in Industrial Organization

By Peter J. Buckley; Jonathan Michie | Go to book overview

are contracts?' and so on, and it was often very hard to know what in practice the concepts that were being employed really meant. ( Coase 1992: 333)

Coase goes on to call for more empirical work, including the collection of contracts, 'so that in future we do not have to pretend to know their characteristics and therefore devote ourselves to studying imaginary contracts rather than real ones'. But Coase is certainly not calling for some simple empiricism; he also makes a methodological point about theoretical modelling which, although he doesn't say so himself, would undermine much of the work on economic theory done in this area to date:

I also want to say something else about modelling . . . I think you can be too precise too soon and that this is a situation you are liable to be in when you are very ignorant. And I think that we are very ignorant in this field . . . To have a model that simply incorporates what you know (or think you know) at an early stage may, in fact, by producing results that are very misleading, prevent useful research from taking place . . . I fear that we might be in this sort of condition now where people will produce models in which we ignore what subsequently are discovered to be important aspects of the problem, but which, in the meantime, put us off doing the research necessary to find them. ( Coase 1992: 335-6) 9

Examples of such important aspects might include the concepts of 'knowledge', 'trust', and 'power'. These are surely central to an understanding of contracts and their use, the firm and its operation, and industrial organization more generally, when firms go out into the 'market', but rarely as passive price-takers. Instead we see co-operation, collusion, and various other relationships, including the development of joint ventures, networks, and clans.


Notes
1.
Coase additionally argues that since a firm may produce more than one product, there would in any case be no reason for rising cost curves to limit the size of the firm ( Coase, 1937, p. 402; this volume, p. 51).
2.
The 'garden leaves' clause is so called because if an employee quits, he or she is obliged to spend the next two years (or whatever the specified period) sitting at home watching the garden leaves.
3.
In the library copy of Alchian and Demsetz's article used for reference in writing this Introduction, alongside their question 'How can the members of a team be rewarded and induced to work efficiently?', someone had written 'stop exploiting them!!'. Now of course there is not, in fact, any exploitation in the Alchian and Demsetz story--even if output levels from a given group of workers has increased, this can only have happened, in Alchian and Demsetz's world, because it is good for the workers concerned. But this last point is perhaps what provoked

-18-

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Firms, Organizations and Contracts: A Reader in Industrial Organization
Table of contents

Table of contents

  • Title Page iii
  • Preface and Acknowledgements v
  • Acknowledgements vi
  • Contents viii
  • List of Contributors xi
  • Foreword xiii
  • Introduction and Overview 1
  • Notes 18
  • References 20
  • I. THEORY OF THE FIRM 21
  • 1: The Equilibrium of the Firm 23
  • 2: The Nature of the Firm 40
  • 3: The Organization of Industry 59
  • 4: Production, Information Costs, and Economic Organization 75
  • Summary 95
  • Notes 96
  • References 102
  • 5: Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure 103
  • Conclusions 151
  • Notes 151
  • References 163
  • 6: Transaction-Cost Economics: The Governance of Contractual Relations 168
  • Conclusion 192
  • 7: An Economist's Perspective on the Theory of the Firm 199
  • Conclusion 212
  • Notes 212
  • II. MARKETS AND INDUSTRIAL ORGANIZATION 219
  • 8: Corporate Culture and Economic Theory 221
  • Introduction 221
  • Conclusion 261
  • Appendix 262
  • Appendix 271
  • Appendix 273
  • References 274
  • 9: Co-operative Agreements and the Organization of Industry 276
  • References 292
  • 10: Interpenetration of Organization and Market: Japan's Firm and Market in Comparison with the US 293
  • Conclusion 317
  • References 319
  • 11: Vertical Quasi-Integration 320
  • Conclusions 336
  • Notes 337
  • 12: Non-Contractual Relations In Business: A Preliminary Study 339
  • 13: Goodwill and the Spirit of Market Capitalism 359
  • III. JOINT VENTURES, NETWORKS, AND] CLANS 383
  • III. JOINT VENTURES, NETWORKS, AND] CLANS 385
  • References 407
  • 15: Joint Ventures 410
  • Conclusion 427
  • References 428
  • 16: Organizations: New Concepts for New Forms 429
  • Conclusion 440
  • Notes 441
  • 17: Markets, Bureaucracies, and Clans 442
  • References 456
  • Notes 459
  • References 473
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