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A formal model of firm boundaries and haggling

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  • Mori, Yusuke

Abstract

This study provides a formal model of Williamson’s haggling theory in which transacting parties engage in ex post contract renegotiation. We show that integration can economize bargaining costs but suffers from too much third-party arbitration (i.e., fails in selective intervention).

Suggested Citation

  • Mori, Yusuke, 2017. "A formal model of firm boundaries and haggling," Economics Letters, Elsevier, vol. 156(C), pages 15-17.
    • Handle: RePEc:eee:ecolet:v:156:y:2017:i:c:p:15-17
    DOI: 10.1016/j.econlet.2017.03.037
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    References listed on IDEAS

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    1. Bajari, Patrick & Tadelis, Steven, 2001. "Incentives versus Transaction Costs: A Theory of Procurement Contracts," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 387-407, Autumn.
    2. Olivier Compte & Philippe Jehiel, 2002. "On the Role of Outside Options in Bargaining with Obstinate Parties," Econometrica, Econometric Society, vol. 70(4), pages 1477-1517, July.
    3. Niko Matouschek, 2004. "Ex Post Inefficiencies in a Property Rights Theory of the Firm," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 20(1), pages 125-147, April.
    4. Oliver E. Williamson, 2014. "The Transaction Cost Economics Project," Montenegrin Journal of Economics, Economic Laboratory for Transition Research (ELIT), vol. 10(1), pages 7-12.
    5. Patrick W. Schmitz, 2006. "Information Gathering, Transaction Costs, and the Property Rights Approach," American Economic Review, American Economic Association, vol. 96(1), pages 422-434, March.
    6. Dilip Abreu & Faruk Gul, 2000. "Bargaining and Reputation," Econometrica, Econometric Society, vol. 68(1), pages 85-118, January.
    7. Oliver Hart & Bengt Holmstrom, 2010. "A Theory of Firm Scope," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(2), pages 483-513.
    8. Michael Powell, 2015. "An Influence-Cost Model of Organizational Practices and Firm Boundaries," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 31(suppl_1), pages 104-142.
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    Cited by:

    1. Schmitz, Patrick W., 2021. "On the optimality of outsourcing when vertical integration can mitigate information asymmetries," Economics Letters, Elsevier, vol. 202(C).
    2. Schmitz, Patrick W., 2017. "Incomplete contracts, shared ownership, and investment incentives," Journal of Economic Behavior & Organization, Elsevier, vol. 144(C), pages 153-165.
    3. Schmitz, Patrick W., 2021. "Optimal ownership of public goods under asymmetric information," Journal of Public Economics, Elsevier, vol. 198(C).
    4. Schmitz, Patrick W., 2020. "Moral hazard and the property rights approach to the theory of the firm," Economics Letters, Elsevier, vol. 186(C).
    5. Schmitz, Patrick W., 2017. "Asymmetric information and the property rights approach to the theory of the firm," Economics Letters, Elsevier, vol. 159(C), pages 96-99.
    6. Schmitz, Patrick W., 2021. "Contracting under adverse selection: Certifiable vs. uncertifiable information," Journal of Economic Behavior & Organization, Elsevier, vol. 182(C), pages 100-112.

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    More about this item

    Keywords

    Transaction cost; Haggling; Fiat; Firm boundaries;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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