IDEAS home Printed from https://ideas.repec.org/b/zbw/esmono/222987.html
   My bibliography  Save this book

Multinational Corporations and Transaction Costs

Author

Listed:
  • Todorova, Tamara

Abstract

This book is a study of the multinational corporation from the transaction cost perspective. The firm is a system of administrative relationships based on a nexus of contracts and the strong interdependence of specific assets. The firm substitutes the market mechanism when, in view of resource allocation and the existing transaction costs, it is a more costly instrument than the entrepreneur with his coordinating role. Using the theory advanced by Ronald Coase and Oliver Williamson we investigate some key features of the multinational corporation. We analyze the role of technology for the emergence of multinationals. This emergence is predetermined by scientific discoveries and technological innovations which shorten the geographic distances among economic resources in the world and allow cutting on organizational costs within the firm. The multinational firm is a complex hierarchical structure dispersed in many countries and aimed at replacing the international market in the allocation of global resources. The firm performs this task at less cost than the market. The more costly the different regional or national markets in which multinational firms operate, the greater the advantage of the bureaucracy, the more centralized the company and the lower the autonomy of the subsidiaries. Some further findings are that there are specific risks for multinationals in their operations in the global market since there are various market failures present. Firms overcome those by internal organization, horizontal and vertical integration. Through intrafirm trade and transfer prices companies manage to capture externalities becoming thus a cheaper instrument of resource allocation than the market. The international division of labor transforms into intrafirm division, market pricing turns into transfer prices and the technological transfer turns into intrafirm exchange of technological knowledge and innovations. Multinational firms are faced with transactional and behavioral opportunism in Eastern Europe, both from employees and contractual partners in market dealings. Multinationals have difficulty finding skillful management with western education and experience in the tradition and practices of the market economy. This hinders the role of management in substituting the market mechanism. Additional sources of risk and instability for multinational corporations in the region of Eastern Europe are the underdeveloped capital market, macroeconomic instability, consistent corruption and crime, political risks, lack of property right enforcement, etc.

Suggested Citation

  • Todorova, Tamara, 2020. "Multinational Corporations and Transaction Costs," EconStor Books, ZBW - Leibniz Information Centre for Economics, number 222987.
    • Handle: RePEc:zbw:esmono:222987
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/222987/1/KSP_book.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-795, December.
    2. Dahlman, Carl J, 1979. "The Problem of Externality," Journal of Law and Economics, University of Chicago Press, vol. 22(1), pages 141-162, April.
    3. Peter J. Buckley & Mark Casson, 1991. "The Future of the Multinational Enterprise," Palgrave Macmillan Books, Palgrave Macmillan, edition 0, number 978-1-349-21204-0.
    4. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626, National Bureau of Economic Research, Inc.
    5. Telser, Lester G & Higinbotham, Harlow N, 1977. "Organized Futures Markets: Costs and Benefits," Journal of Political Economy, University of Chicago Press, vol. 85(5), pages 969-1000, October.
    6. Barzel,Yoram, 1997. "Economic Analysis of Property Rights," Cambridge Books, Cambridge University Press, number 9780521597135, February.
    7. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-641, August.
    8. Todorova, Tamara, 2015. "The Transaction-Cost Roots of Market Failure," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 0(1(11)), pages 30-44.
    9. Nicholas Kaldor, 1934. "A Classificatory Note on the Determinateness of Equilibrium," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 1(2), pages 122-136.
    10. Raymond Vernon, 1966. "International Investment and International Trade in the Product Cycle," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 80(2), pages 190-207.
    11. Smith, Adam, 1776. "An Inquiry into the Nature and Causes of the Wealth of Nations," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number smith1776.
    12. Nelson, Philip, 1974. "Advertising as Information," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 729-754, July/Aug..
    13. Irving B. Kravis & Robert E. Lipsey, 1988. "The Effect of Multinational Firms' Operations on Their Domestic Employment," NBER Working Papers 2760, National Bureau of Economic Research, Inc.
    14. Eggertsson,Thrainn, 1990. "Economic Behavior and Institutions," Cambridge Books, Cambridge University Press, number 9780521348911.
    15. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    16. Matthews, R C O, 1986. "The Economics of Institutions and the," Economic Journal, Royal Economic Society, vol. 96(384), pages 903-918, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Todorova, Tamara, 2000. "Транзакционен Модел На Транснационалната Корпорация: Тестване В Условията На Българския Пазар [A Transaction Cost Model of the Multinational Corporation: Testing in the Bulgarian Market Conditions]," MPRA Paper 75810, University Library of Munich, Germany, revised May 2000.
    2. Tamara Todorova, 2004. "The Firm in the Context of the Theory of Transaction Costs," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 55-74.
    3. repec:eee:labchp:v:2:y:1986:i:c:p:789-848 is not listed on IDEAS
    4. Darby, Michael R. & Lott, John Jr., 1989. "Qualitative information, reputation, and monopolistic competition," International Review of Law and Economics, Elsevier, vol. 9(1), pages 87-103, June.
    5. Stephan Bartke & Reimund Schwarze, 2021. "The Economic Role and Emergence of Professional Valuers in Real Estate Markets," Land, MDPI, vol. 10(7), pages 1-20, June.
    6. Jongwook Kim & Joseph T. Mahoney, 2002. "Resource-based and property rights perspectives on value creation: the case of oil field unitization," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 23(4-5), pages 225-245.
    7. Bartke, Stephan, 2015. "The economic role of valuers in real property markets," UFZ Discussion Papers 13/2015, Helmholtz Centre for Environmental Research (UFZ), Division of Social Sciences (ÖKUS).
    8. Kim, Jongwook & Mahoney, Joseph T., 2008. "A Strategic Theory of the Firm as a Nexus of Incomplete Contracts: A Property Rights Approach," Working Papers 08-0108, University of Illinois at Urbana-Champaign, College of Business.
    9. Haucap, Justus, 2017. "The rule of law and the emergence of market exchange: A new institutional economic perspective," DICE Discussion Papers 276, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    10. Matyukha, Andriy, 2017. "Business groups in agriculture impact of ownership structures on performance: The case of Russia's agroholdings," Studies on the Agricultural and Food Sector in Transition Economies 254051, Institute of Agricultural Development in Transition Economies (IAMO).
    11. Kovac Mitja & Elkanawati Amira & Gjikolli Vita & Vandenberghe Ann-Sophie, 2020. "The Covid-19 pandemic: collective action and European public policy under stress," Central European Journal of Public Policy, Sciendo, vol. 14(2), pages 47-59, December.
    12. Mehrdad Vahabi, 2011. "Appropriation, violent enforcement, and transaction costs: a critical survey," Public Choice, Springer, vol. 147(1), pages 227-253, April.
    13. Belleflamme, Paul & Peitz, Martin, 2014. "Asymmetric information and overinvestment in quality," European Economic Review, Elsevier, vol. 66(C), pages 127-143.
    14. Tamara Todorova, 2004. "Quality Aspects of Economic Transition: The Effect of Inferior Quality on the Market," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 59-78.
    15. Jack Hirshleifer & John G. Riley, 1976. "The New Economics of Information," UCLA Economics Working Papers 074, UCLA Department of Economics.
    16. Nicolau, Juan Luis & Sellers, Ricardo, 2002. "The stock market's reaction to quality certification: Empirical evidence from Spain," European Journal of Operational Research, Elsevier, vol. 142(3), pages 632-641, November.
    17. Solimine, Philip & Isaac, R. Mark, 2023. "Reputation and market structure in experimental platforms," Journal of Economic Behavior & Organization, Elsevier, vol. 205(C), pages 528-559.
    18. Ibrahim Demir, 2016. "The firm size, farm size, and transaction costs: the case of hazelnut farms in Turkey," Agricultural Economics, International Association of Agricultural Economists, vol. 47(1), pages 81-90, January.
    19. Kubitzki, Sabine & Krischik-Bautz, Stephanie, 2011. "Weiß der Verbraucher wirklich, welche Qualität er kauft? Eine Studie zur Qualitätserwartung an Prüfzeichen," Journal of International Agricultural Trade and Development, Journal of International Agricultural Trade and Development, vol. 60(1).
    20. Dan Amiram & Zahn Bozanic & James D. Cox & Quentin Dupont & Jonathan M. Karpoff & Richard Sloan, 2018. "Financial reporting fraud and other forms of misconduct: a multidisciplinary review of the literature," Review of Accounting Studies, Springer, vol. 23(2), pages 732-783, June.
    21. Christos Pitelis, 2013. "Towards a More ‘Ethically Correct’ Governance for Economic Sustainability," Journal of Business Ethics, Springer, vol. 118(3), pages 655-665, December.

    More about this item

    Keywords

    multinational corporations; transaction costs;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:esmono:222987. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/zbwkide.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.