Public Markets, Private Orderings and Corporate Governance
AbstractIn 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 InfoPaper provided by ESRC Centre for Business Research in its series ESRC Centre for Business Research - Working Papers with number wp166.
Date of creation: Jun 2000
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public markets; private orderings;
Other versions of this item:
- Pagano, Ugo, 2000. "Public markets, private orderings and corporate governance," International Review of Law and Economics, Elsevier, vol. 20(4), pages 453-477, December.
- K00 - Law and Economics - - General - - - General (including Data Sources and Description)
- K10 - Law and Economics - - Basic Areas of Law - - - General (Constitutional Law)
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
- P51 - Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-01-27 (All new papers)
- NEP-CFN-2001-01-27 (Corporate Finance)
- NEP-LAW-2001-01-27 (Law & Economics)
- NEP-REG-2001-01-27 (Regulation)
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