IDEAS home Printed from https://ideas.repec.org/h/pal/palchp/978-1-349-05242-4_2.html
   My bibliography  Save this book chapter

Transaction Costs and the Theory of the Multinational Enterprise

In: The Economic Theory of the Multinational Enterprise

Author

Listed:
  • Mark Casson

Abstract

The theory of internalisation is now widely accepted as a key element in the theory of the multinational enterprise (MNE) (see Chapter 1). Internalisation is a general theory of why firms exist, and without additional assumptions it is almost tautological. To make the theory operational it is necessary to specify assumptions about transaction costs for particular products and for trade between particular locations. It is typically asserted that: (1) It is very costly to license unpatentable know-how, so that the market for know-how must be internalised. This leads to the vertical integration of production and R & D, and, because of the ‘public good’ characteristics of know-how, to the consequent horizontal integration of production in different locations. (2) It is difficult to specify and enforce long-term futures contracts, so that the market for raw materials used by capital-intensive production processes must be internalised by backward integration. (3) Ad valorem tariffs, international tax differentials and foreign exchange controls create incentives for transfer-pricing, which are most easily exploited through internalisation.

Suggested Citation

  • Mark Casson, 1985. "Transaction Costs and the Theory of the Multinational Enterprise," Palgrave Macmillan Books, in: The Economic Theory of the Multinational Enterprise, chapter 2, pages 20-38, Palgrave Macmillan.
  • Handle: RePEc:pal:palchp:978-1-349-05242-4_2
    DOI: 10.1007/978-1-349-05242-4_2
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    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:pal:palchp:978-1-349-05242-4_2. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://www.palgrave.com .

    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.

    We have no bibliographic references for this item. You can help adding them by using 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: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.palgrave.com .

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.