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Public Markets, Private Orderings and Corporate Governance

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  • Ugo Pagano

Abstract

In the New Property Rights approach the degree of incompleteness of markets is taken independently of the cost of the public ordering and of their efficiency relatively to private orderings. In this approach "public markets", similarly to a Swiss cheese, are either assumed to be non-existent empty holes (because of infinite third party verification costs) or assumed to be smooth and efficient (because of zero third party verification costs). When we allow for positive but not infinite third party verification costs we are necessarily pushed back to the insights of Commons, Coase, Fuller and Williamson. The degree of (in) completeness of public markets becomes an endogenous economic problem and managers can be seen as agents that make "second order" specific investments to run specific relations that cannot be efficiently run by public markets. Managers and the public authorities build respectively private and public "legal equilibria" that set the working rules within which transactions can take place. Private and public legal equilibria are not only substitutes but also complements. This complementarity is an important source of the path dependency that characterises the development of different legal systems. The framework is applied to GM's acquisition of Fisher Body. We claim that, contrary to the claims of the New Property Rights approach, the advantages of the acquisition cannot be due to the incentives of private property but should be rather related to the replacement of public markets by the new private ordering set up by Alfred Sloan.

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Bibliographic Info

Paper provided by ESRC Centre for Business Research in its series ESRC Centre for Business Research - Working Papers with number wp166.

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Date of creation: Jun 2000
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Handle: RePEc:cbr:cbrwps:wp166

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Keywords: public markets; private orderings;

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  1. repec:fth:diecpo:9 is not listed on IDEAS
  2. Andrei Shleifer, 1998. "State Versus Private Ownership," Harvard Institute of Economic Research Working Papers 1841, Harvard - Institute of Economic Research.
  3. Williamson, Oliver E, 1994. "Evaluating Coase," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 201-04, Spring.
  4. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817, September.
  5. Bengt Holmstrom & John Roberts, 1998. "The Boundaries of the Firm Revisited," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 73-94, Fall.
  6. Geoffrey M. Hodgson, 1998. "The Approach of Institutional Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 166-192, March.
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Cited by:
  1. Ugo Pagano, 2009. "Marrying in the Cathedral: a Framework for the Analysis of Corporate Governance," Department of Economics University of Siena 571, Department of Economics, University of Siena.
  2. Ugo Pagano, 2012. "No institution is a free lunch: a reconstruction of Ronald Coase," Department of Economics University of Siena 633, Department of Economics, University of Siena.
  3. Ugo Pagano, 2003. "Posiciones legales y complementariedades institucionales," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 5(9), pages 17-54, July-Dece.
  4. Belloc, Marianna & Pagano, Ugo, 2009. "Co-evolution of politics and corporate governance," International Review of Law and Economics, Elsevier, vol. 29(2), pages 106-114, June.
  5. Antonio Nicita & Simone Sepe, 2012. "Incomplete contracts and competition: another look at fisher body/general motors?," European Journal of Law and Economics, Springer, vol. 34(3), pages 495-514, December.
  6. Ugo Pagano & Maria Rossi, 2004. "Incomplete Contracts, Intellectual Property and Institutional Complementarities," European Journal of Law and Economics, Springer, vol. 18(1), pages 55-76, July.
  7. James H. Love, 2010. "Opportunism, Hold-Up and the (Contractual) Theory of the Firm," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 166(3), pages 479-501, September.
  8. Ugo Pagano, 2013. "Love, war and cultures: an institutional approach to human evolution," Journal of Bioeconomics, Springer, vol. 15(1), pages 41-66, April.
  9. D'Antoni, Massimo & Pagano, Ugo, 2002. "National cultures and social protection as alternative insurance devices," Structural Change and Economic Dynamics, Elsevier, vol. 13(4), pages 367-386, December.
  10. Sven-Olof Collin, 2007. "Governance strategy: a property right approach turning governance into action," Journal of Management and Governance, Springer, vol. 11(3), pages 215-237, September.

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