Public Markets, Private Orderings and Corporate Governance
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.
|Date of creation:||Jun 2000|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.cbr.cam.ac.uk/ |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
- Andrei Shleifer, 1998.
"State Versus Private Ownership,"
NBER Working Papers
6665, National Bureau of Economic Research, Inc.
- Andrei Shleifer, 1998. "State Versus Private Ownership," Harvard Institute of Economic Research Working Papers 1841, Harvard - Institute of Economic Research.
- 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.
- Ugo Pagano, 1999. "The Origin of Organizational Species," ESRC Centre for Business Research - Working Papers wp118, ESRC Centre for Business Research.
- Fabrizio Barca & Katsuhito Iwai & Ugo Pagano & Sandro Trento, 1998. "The Divergence of the Italian and Japanese Corporate Governance Models: The Role of Institutional Shocks," CIRJE F-Series CIRJE-F-32, CIRJE, Faculty of Economics, University of Tokyo.
- Williamson, Oliver E, 1994. "Evaluating Coase," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 201-04, Spring.
- Geoffrey M. Hodgson, 1998. "The Approach of Institutional Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 166-192, March.
When requesting a correction, please mention this item's handle: RePEc:cbr:cbrwps:wp166. 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: (Howard Cobb)
If references are entirely missing, you can add them using this form.